Question

Today’s Electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components. Phyllis Weinberger, who is responsible for advising the president of Today’s Electronics on electronic manufacturing equipment, has developed the following table concerning a proposed facility:

a. Develop an opportunity loss table.

b. What is the minimax regret decision?

Use .7 alpha for Hurwicz

	Profit ($)
	Strong Market	Fair Market	Poor Market
Large Facility	550,000	110,000	-310,000
Medium-sized Facility	300,000	129,000	-100,000
Small Facility	200,000	100,000	-32,000
No Facility	0	0	0

Answer 1

a)

Opportunity Loss Table

	Opportunity Loss
	Strong Market	Fair Market	Poor Market	Maximum
Large Facility	0	19000	310000	310000
Medium Size Facility	250000	0	100000	250000
Small Facility	350000	29000	32000	350000
No Facility	550000	129000	0	550000

b)

Minimax decision approach:

Minimum of Maximum (Opportunity Loss table) is 250000 for Medium size facility.

So decision would be to open a Medium size facility.

Though none of the above question uses Hurwcz apporach. value of alpha is given. So we will calculate weighted average by Hirwich approach too.

By using Hurwicz approach we can calculate the weighted average as

And choose the decision variable which has maximum weight.

	Strong Market	Fair Market	Poor Market	Weighted Average
Large Facility	5,50,000	1,10,000	-3,10,000	292000
Medium Size Facility	3,00,000	1,29,000	-1,00,000	180000
Small Facility	2,00,000	1,00,000	-32,000	130400
No Facility	0	0	0	0

As Max(Weighted Average)=292000, the best decision by Hurwicz approach would be to set up a Large Facility