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Decision Making

Internat Corporation wants to choose the optimal location to open a new manufacturing facility to serve the global market. The document provides a table with potential profit figures for plant locations in the US, Ireland, Spain, and Japan under three different exchange rate scenarios. It asks to determine the optimal location using maximax, maximin, Laplace, and minimax regret decision criteria. The problem is then modified to focus on determining the optimal capacity for a new production facility, given three possible future demand levels and the profits associated with three capacity alternatives. It provides a new payoff matrix and asks to determine the optimal capacity using the same decision criteria.

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Isher Singh
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23 views2 pages

Decision Making

Internat Corporation wants to choose the optimal location to open a new manufacturing facility to serve the global market. The document provides a table with potential profit figures for plant locations in the US, Ireland, Spain, and Japan under three different exchange rate scenarios. It asks to determine the optimal location using maximax, maximin, Laplace, and minimax regret decision criteria. The problem is then modified to focus on determining the optimal capacity for a new production facility, given three possible future demand levels and the profits associated with three capacity alternatives. It provides a new payoff matrix and asks to determine the optimal capacity using the same decision criteria.

Uploaded by

Isher Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Original Problem

Internat Corporation wants to open a new manufacturing facility to serve the


world market.The companys economists have identified plant sites and the
profits associated as follows:
Plant location

Exchange rate scenarios


1

3
U.S.
Ireland
Spain
Japan

22
18
12
5

13
16
19
12

7
15
13
25

Value in million dollars $


Determine the optimal plant location using the following decision criteria: (i)
maximax, (ii) maximin
(iii) Laplace (iv) minimax regret.
Modified Problem
Suppose a company wants to construct a facility to produce a new product but it
must decide how large the capacity should be. For each capacity alternative the
profitability of the plant will depend on the future product. Suppose the company
believes there are three levels of demand possible given in the payoff matrix.
Capacity
Alternative

Low

Possible future Demand


Moderate

High
200,000/yr
400,000/yr
600,000/yr
Value in million dollars $

4.0
1.5
2.0

4.5
7.0
5.0

4.5
7.5
12.0

Determine the optimal capacity for different decision criteria?


Answer
Capacity
Best Payoff
Alternative
Average Payoff
200,000/yr
4.5
400,000/yr
7.5
600,000/yr
12.0*
*Maximax optimum=12.0
Maximin optimum=4.0
Laplace optimum=5.50
Capacity
Alternative
200,000/yr

Worst Payoff
4.0
1.5
2.0

4.33
5.50
5.00

Maximum Regret
7.5

Page No. 319 PRODUCTION AND OPERATIONS MANAGEMENT BY JOSEPH


S.MARTINICH

400,000/yr
600,000/yr
`` Minimax regret optimum=4.5

4.5``
6.0

Page No. 319 PRODUCTION AND OPERATIONS MANAGEMENT BY JOSEPH


S.MARTINICH

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