Exercise 1 The Jamis Corporation is involved with waste management. During the past 10 years it has become one of the largest waste disposal companies in the Midwest, serving primarily Wisconsin, Illinois. Bob Jamis, the president of the company, is considering the possibility of establishing a waste treatment plant in Mississippi. From past experience, Bob believes that a small plant in northern Mississippi would yield a $500,000 profit regardless of the market for the facility. The success of a medium-sized waste treatment plant would depend on the market. With a low demand for waste treatment, Bob expects a profit of $200,000. A medium demand would yield a $700,000 return in Bob's estimation, and a high demand would return $800,000. Although a large facility is much riskier, the potential return is much greater. With a high demand for waste treatment in Mississippi, the large facility would return a million dollars. With a medium demand, the large facility would return only $400,000. Bob estimates that the large facility would return a loss of $200,000 if demand were low. For each of the following criterion, what should Bob do? A. Deterministic criterion B. Optimistic (maximax) criterion C. Pessimistic (maximin) criterion D. Criterion of realism (Hurwicz criterion) with an alpha of 0.70. E. Equally likely (LaPlace) F. Minimax regret Exercise 2 Looking at the economic conditions for the upper part of the state of Mississippi and using his experience in the field, Bob estimates that the probability of a low demand for treatment plants is 0.15 and the probability of a medium demand is 0.40. A. What should Bob do? Explain. B. Calculate the EVPI