A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm’s capacity. The contractor must now make a decision on capacity for next year. Estimated profit under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is a. Maximax? b. Maximin? c. Laplace? d. Minimax regret? New Year Demand Alternative Low High Do nothing $50 $60 Expand 20 80 Sub contract 40 70 Profit in $ Thousands
|Low Demand||High Demand|
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