Question

Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gas station.Susan’s problem is to decide how large her station should be. The annual returns will depend on both the size of the station and a number of marketing factors related to oil industry and demand for gasoline.After careful analysis, Susan developed the following table:

Size of First Station	Good Market	Fair Market	Poor Market
Small	$50,000	$20,000	$-10,000
Medium	$80,000	$30,000	$-20,000
Large	$100,000	$30,000	$-40,000
Very Large	$300,000	$25,000	$-160,000

a) What is the criterion of realism decision? Use a value of 0.8. b) What is the minimax regret decision?

Please show work. Thank you.

Answer 1