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Even though independent gasoline stations have been having a difficult time Susan Solomon has been thinking about starting her own independent gas station Susans problem is to decide how large

Even though independent gasoline stations have been having a
difficult time, Susan Solomon has been thinking about starting her own
independent gas station. Susan’s problem
is to decide how large her station should be.
The annual returns will depend on both the size of the station and a
number of marketing factors related to oil industry and demand for
gasoline. After careful analysis, Susan
developed the following table:

Size of Gasoline Station

Good
Market ($)

Fair
Market ($)

Poor
Market ($)

Small

$50,000

$20,000

-$10,000

Medium

$80,000

$30,000

-$20,000

Large

$100,000

$30,000

-$40,000

Very Large

$300,000

$25,000

-$160,000

a. Develop a decision table for this decision.
b. What is the Maximax decision?
c. What is the Maximin decision?
d. What is the equally likely decision?
e. What is the criterion of realism decision? Use ? = 0.8.
f. Develop an Opportunity Loss Table
g. What is the Minimax Regret Decision?

2. A concessionaire for the local ballpark has developed a table of
conditional values for the various alternatives (stocking decisions) and states
of nature (size of crowd).

Stocking Decision

Large
Crowd ($)

Average
Crowd ($)

Small
Crowd ($)

Large Inventory

$22,000

$12,000

-$2,000

Average Inventory

$15,000

$12,000

$6,000

Small Inventory

$9,000

$6,000

$5,000

If the probabilities associated with the states of nature are 0.30 for
a large crowd, 0.50 for an average crowd, and 0.20 for a small crowd,
determine:

a. The alternative that provides the greatest expected monetary value
(EMV).
b. The expected value of perfect information (EVPI).

Jun 19 2020 View more View Less

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