Question 3 Payoff Matrix (20 marks) Picasso Paints closest rival, Tulux recently introduced a paint that is suitable to paint on polymer products. Picasso Paints are noticing they are losing customers to Tulux. Picasso Paints has the technology to manufacture the paint, however, are unsure about what pricing strategy to adopt because of Tulux possible reaction.

The following data for a month has been gathered:

Loss of profit if Picasso does not introduce the new product $2,000

Additional monthly fixed cost to manufacture the new product. $16,000

Variable manufacturing costs per litre $3.00

Tulux current selling price per litre $14.00

Lowest possible selling price for Picasso $12.00

Volume for the month (litres) 5,000

Picasso market share is estimated to be:

Picasso Paints Strategy Tulux Reaction Picasso Market Share Sell for $14 per litre Sell for $14 per litre 25%

Sell for $14 per litre Sell for $12 per litre 1%

Sell for $12 per litre Sell for $14 per litre 90%

Sell for $12 per litre Sell for $12 per litre 5%

Required: Construct a matrix based on the information provided. From it, choose the best strategy when applying the following decision criteria:

1. Maximax ?

2. Maximin ?

3. Laplace criterion?

4. Minimax regret ?

5. Expected monetary value assuming there is an 80% probability that Tulux will reduce its price to $12 when it finds out that Picasso is introducing the new product? 6. Discuss the ethical concerns that the decision-maker should be aware of when deciding what course of action to take?