CORRECTION

EXERCISE I/

1.
*Max(E): 8 . 106 $
Max(M):13. 106 $
Max(S):3.2 106 $
Maximax: 13. 106 $
I recommend M: maintaining the status quo
*Min(E) : 5. 106 $
Min(M): -1.5. 106 $
Min(S):3.2 . 106 $
Maximin: 5. 106 $
I recommend E: expanding the plant and producing the materials for military
*Matrix of regrets

Decision Good conditions Poor conditions

E 5. 106 $ 0

M 0 6.5. 106 $

S 9.8. 106 $ 1.8. 106 $

Max regret (E): 5 . 106 $

Max regret (M):6.5 . 106 $
Max regret (S):9.8 . 106 $
Minimax: 5 . 106 $
I recommend E: The expansion
 Laplace
Expected return(E): (8+5)/2 : 6.5 . 106 $
Expected return (M): (13-1.5)/2: 5.75 . 106 $
Expected return(S) : (3.2:+3.2)/2: 3.2 . 106 $
I recommend E since it provides the highest outcome
 2. GC (0.7) 8
2.1 Decision tree

PG(0.3) 5
E
GC(0.7) 13
3
M
PG (0.3) -1.5

s 3.2
GC(0.7)

Expected return (E):

PG(0.3)
8 X0.7 + 5X0.3 =7.1 . 106 $ 3.2
Expected return (M): 13 X0.7 + (-1.5) x0.3 = 8.65 . 106 $
Expected return (S): 3.2 X 0.7+3.2X0.3=3.2 . 106 $
I recommend M

EXERCISE 2 :

1.What would be the best decisions under each of the following criteria:

* Minimax (7.5 marks)

Alternative State of nature

actions Demand
Low Medium High
Build 50 400 400 400
Build 100 100 800 800
Build 150 200 500 1200
(2)

Alternative
actions Max regret
Low Medium High
Build 50 0 400 800 800
Build 100 300 0 400 400
Build 150 200 300 0 300

(4)
The decision is to build 150 ( the minimum of maximum regret)(1.5)

* Laplace (7.5 marks)

 Alternative State of nature Average
actions Demand
Low Medium High
Build 50 400 400 400 400
Build 100 100 800 800 566.66
Build 150 200 500 1200 633.33
(6)

The decision is to build 150 units ( the highest average) (1.5)

2. Construct the decision tree in the light of these new data. (5 marks)

3.What would be the best decision according to the EMV criterion?

(10 marks)

Alternative State of nature EMV

actions Demand
Low( 0.2) Medium(0.5) High(0.3)
Build 50 400 400 400 400
(Build 100 100 800 800 660
Build 150 200 500 1200 650
( 3 / row)

The decision is to build 100 units ( the highest weighted average) (1 )

EXERCISE 3

Strategies Cost Synergy with the Risk Profitability Fit of the TOTAL GRADE/
existing strategies strategy
with the Strategy
company’s
core
competenci
es

Weighting 0.1 0.2 0.1 0.3 0.3

coef

Strategy 1 3 3 3 1 3 2.4

Strategy 2 2 2 2 2 2 2

Strategy 3 1 1 1 3 1 1.6

Recommendation: Strategy 1 (highest grade)