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 maximin criterion is strategy ________ and the best possible payoff is ________. A) 1, $50,000 B) 2, $120,000 C) 1, $100,000 D) 1, $70,000 E) 2, $80,000

Question

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To use the maximin criterion, you find the worst possible payoff for each alternative and then choose the alternative that yields the maximum worst possible payoff. Alternative 1 yields the maximum of the worst possible payoffs ($70,000).

Alternatives 1 and 2 in the Following Payoff Table Represent