Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (S_I) represent the levels of demand for the company products. S₁, S₂, and S₃ characterize high, medium, and low demand, respectively. The payoff values are in thousands of dollars.
The best alternative (course of action) for the EKA manufacturing company, using the maximax criterion, is alternative 1.

Question

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (S_I) represent the levels of demand for the company products. S₁, S₂, and S₃ characterize high, medium, and low demand, respectively. The payoff values are in thousands of dollars.

The best alternative (course of action) for the EKA manufacturing company, using the maximax criterion, is alternative 1.

Quizplus · Accepted Answer

Using the maximax criterion, the alternative strategy that would be chosen is 2 because the state of nature 2 has the best possible payoff.

Alternatives 1 and 2 in the Following Payoff Table Represent