4. A firm is considering the purchase of a complex equipment from either of the two suppliers S1 and S2•

Supplier S1 is capable of supplying the equipment on time to meet a certain desired deadline. The price chargeable by S1 is, however, considerably higher than that of S2• It is felt by the management of the firm that S2 may deliver the equipment or may not be able to deliver on time. It is even suspected that Supplier S2 may never be able to deliver the equipment to the specifications. However, the management believes that if it waits for some months, it may get better information on S/s capabilities of supplying the equipment.

The management is considering three alternative courses of action.

A1: Order from S1• If later it is clear that S2 can supply, order from S1 can be cancelled. Of course, delay would be caused when order is given to S2•

A2: Order from supplier S2• If it is known later on that S2 cannot supply the equipment, the order may be switched to S1•

A3: Wait till the time information on S/s capabilities is known. This would obviously cause delay.

The outcomes (profits) in the various possible situations are:

What would be the management's decision according to each of the following criteria:

(a) Laplace,

(b) Maximin,

(c) Hurwicz (with a= 0.5), and

(d) Minimax Regret.

Transcribed Image Text:

Event A Course of action A A3 555 250 100 200 250 125 300 E3 250 625 450 E S fails to deliver E2 S delivers late E3S2 delivers on time