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3-29 Mick Karra is the manager of MCZ Drilling Prod- ucts, which produces a variety of specialty valves for oil field equipment. Recent activity
3-29 Mick Karra is the manager of MCZ Drilling Prod- ucts, which produces a variety of specialty valves for oil field equipment. Recent activity in the oil fields has caused demand to increase drastically, and a decision has been made to open a new manufactur- ing facility. Three locations are being considered, and the size of the facility would not be the same in each location. Thus, overtime might be necessary at times. The following table gives the total monthly cost (in $1,000s) for each possible location under each demand possibility. The probabilities for the demand levels have been determined to be 20% for low demand, 30% for medium demand, and 50% for high demand. DEMAND DEMAND IS DEMAND IS LOW MEDIUM IS HIGH Ardmore, OK 85 110 150 Sweetwater, TX 90 100 140 Lake Charles, LA 110 120 130 (a) Which location would be selected based on the optimistic criterion? (b) Which location would be selected based on the pessimistic criterion?
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