The ACME company is considering opening a new manufacturing

facility. Three locations are being considered. The following table

gives the total monthly cost (in $1000) 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.

a) Which location would be selected based on the optimistic

criterion?

b) Which location would be selected based on the pessimistic?

c) Which location should be selected to minimize the expected

cost of operation

d) How much is a perfect forecast of the demand worth?

Demand Low Medium High

Alternatives

Ardmore 85 110 150

Sweetwater 90 100 120

Lake Charles 110 120 130