What is the decision?

QUESTION 3-DECISION THEORY- (20 MARKS) Braff Electronics specializes in manufacturing modern electronic components. Raj Johnson who is responsible for advising the president on strategic matters has developed following payoff table concerning a proposed facility: State of Nature Size of Facility Good Economy Fair Economy Poor Economy Large $550,000 $320,000 -$210,000 Medium $400,000 $239,000 $90,000 Small $200,000 $120.000 -$32,000 Probability 0.40 D.35 0.25 From (a) to (g) if you do not show all work, it is impossible to get full marks. You must also state all decisions to be deemed correct. (a) Using an optimistic approach (maximax), what is the decision? (7 mark) (b) Using a pessimistic approach (maximin), what is the decision? (7 mark) (c) For a LaPlace decision maker, what is the decision? (3 marks) (d) For a Hurwicz decision maker, what is the decision? Use a = 0.53? (3 marks) (e) Using a minmax regret approach, which option would you choose? (3 marks) (f) If the demand probabilities are 40%, 35% and 25%, respectively which fund will Prepared by StaceyAnn Lalloo Lead Lecturer PO 5 L maximize expected returns? (3 marks) (g) What is the most the firm should be willing to pay to obtain further (perfect) information (EVPI) concerning the actual state of the economy? (3 marks) (h) Write a brief report on your recommended decision alternative