Using Excel & showing steps - A company must decide now which of three products to make next year to plan and order proper materials. The cost per unit of producing each product will be determined by whether a new union labor contract passes or fails. The cost per unit for each product, given each contract result, is showing in the following payoff table.
Determine which product should be produced, using the following decision criteria.
a. Minimum
b. Maximum
| Product | Contract Outcome | |
| Pass | Fail | |
| 1 | $7.50 | $6.00 |
| 2 | 4.00 | 7.00 |
| 3 | 6.50 | 3.00 |
Answer:
(a)
Minimum: This is defined as the decision making strategy under uncertainity. It is termed as radical strategy where the alternative with the least possible cost is chosen.
| Product 1 | The minimum cost is $6 |
| Product 2 | The minimum cost is $4 |
| Product 3 | The minimum cost is $3 |
Therefore, out of the given 3 products the least possible cost is $3
Thus, the minimin is $3
(b)
Maximum: It is also defined as the decision making under uncertainity. It is termed as a constructive strategy where the alternative with the minimum of the maximum possible cost is chosen.
| Product 1 | The maximum possible cost is $7.50 |
| Product 2 | The maximum possible cost is $7 |
| Product 3 | The maximum possible cost is $6.50 |
Therefore, out of the given 3 products the minimum cost from the maximum cost of each product is $6.50
Thus, the minimax is $6.50
Using Excel & showing steps - A company must decide now which of three products to...