Question 3:Fancyfree Products has received a low-rate industrial loan to
enable it to build a manufacturing plant in an economically depressed area.
Effects of future economic and political conditions influence the site
selection. As a preliminary study of the situation, ratings have been assigned
as outcomes for operating the plant at each site under each of the more likely
future conditions:
Possible conditions
Site
1
2
3
4
NW
0
2
8
20
NE
4
14
12
10
SW
16
6
6
8
SE
4
4
18
6
C
4
14
10
9
(a)Which site is dominated? (Dominance refers to the condition where
one alternative produces greater payoff than another alternative for every
future condition.)
(b)Which site is preferred according to the maximin
criterion?
(c)Which site is preferred according to the maximax
criterion?
(d)Which site gets a preference when the
equal-likelihood principle is applied?
(e)When ? = 0.75, which site has the highest rating
by the Hurwicz principle?
(f) Which site is preferred according to the regret principle?
Question 4: Venture Capitalists, Inc., has $500,000 to invest in anyone
of the mutually executive projects shown below. Each of the projects has a life
of 4 years, and the outcomes shown are annual returns in thousands of dollars
of after-cash flow. Since each of the proposals depends upon public acceptance
of an untested new product, there is considerable doubt about the state of each
return. Apply the six principles of choice listed in question 3, and comment on
the diversification of preference.
Potential market
conditions
Project
W
X
Y
Z
A
200
200
200
200
B
50
150
500
0
0
C
100
300
200
100
0
400
350
200
50
E
300
200
100
0
0
Question 5: Use
the priority decision table to solve this problem.
The
sites for a new research lab has been narrowed to three localities. The
construction cost of the plant will be approximately the same regardless of the
location chosen. However, the costs of land and intangible factors largely
applicable to personnel recruitment vary considerably from one location to
another. Based on the following figures, indicate which site should be selected
(Show your details and table of your calculation).
Characteristics
Site 1
Site 2
Site 3
Importance
Availability
of technicians 7
10
2
10
Adequacy
of subcontractors 5
9
5
8
Proximity
to a university 10 miles
40 miles
30 miles
8
Cost
of land
?? $300,000
$400,000
$50,000
6
Recreational
potential
7
2
10
4
Climate
6
1
9
2
Transportation
9
10
5
2
