Answer:

Maximax Criterion - Select the maximum payoff for each decision. Then, select the maximum of those maximum payoffs.

Maximin Criterion - Select the minimum payoff for each decision. Then, select the maximum of those minimum payoffs.

Consider the following information as shown below:

a.

Calculate the maximum cost decision by using the following formulas in the excel as shown below:

Following values will be obtained:

Therefore, the best decision using the maxi-max approach is lease land.

b.

Calculate the maximum of minimum cost decision by using the following formulas in the excel as shown below:

Following values will be obtained:

Therefore, the best decision using the maximin approach is buy saving certificate.

Answer:

Maximax Criterion - Select the maximum payoff for each decision. Then, select the maximum of those maximum payoffs.

Maximin Criterion - Select the minimum payoff for each decision. Then, select the maximum of those minimum payoffs.

a.

Excel can be used to identify the maximum payoff for each decision. First set up the excel file as shown below. Next, enter the amount of profit for each decision if the material cost is stable or increased. Enter the formula =Max(C5,D5) into cell E5. Copy this formula into E6 and E7. This formula finds the maximum payoff for each decision. Lastly, enter the formula =Max(E5:E7) into cell C9 to find the maximum of the maximum payoffs. The result is $105,000 which means the Maximax decision is to build a shopping center.

b.

To find the minimum payoff for each decision, enter =Min(C5,D5) into cell F5. Copy this formula into cells F6 and F7. Enter the formula =Max(F5:F7) into cell C10 to find the maximum of the minimum payoffs. The result is $40,000 which means the Maximin decision is to lease the company's equipment.

Minimax Regret Criterion - The goal is to select the decision with the least regret. Select the maximum payoff under each condition. Then, subtract the payoff from each decision from this selected payoff under each condition. A regret table can help to identify the maximum regret for each decision. Choose the decision with the minimum regret.

c.

Enter the formula =MAX(C$5:C$7)-C5 into cell C15. Then, copy this formula into all the cells of the regret table. These formulas select the maximum payoff if the material cost is stable or increased and subtracts from it the profit from under each decision. The result is the following excel spreadsheet.

Next, enter the formula =Max(C15,D15) into cell E15. Copy this formula into E16 and E17. This formula finds the maximum regret for each decision.

Lastly, enter the formula =MIN(E15:E17) into cell D19 to find the minimum amount of regret out of the decisions. The result is $20,000 which means the minimax regret decision is to construct a shopping center.

d.

Hurwicz Criterion - For each decision, multiply the coefficient of optimism,

, by the maximum payoff, and multiply the coefficient of pessimism,

, by the minimum payoff. Add these products. Choose the maximum weighted payoffs determined for each decision.

The given coefficient of optimism is 0.20 which means the coefficient of pessimism is

. Multiply 0.20 by the maximum payoff for the decision of building houses and multiply 0.80 by the minimum payoff for the decision of building houses. This results in the formula =C5*C22+D5*C23 in cell C24 in the excel spreadsheet below. Under the same reasoning, cell C25 contains the formula =C6*C22+D6*C23, and cell C26 contains the formula =C7*C22+D7*C23.

Choose the decision with the maximum weighted payoff. Since $40,000 is the greatest profit, the Hurwicz Criterion results in planting leasing the company's equipment.

e.

Equal Likelihood Criterion - Weight each state of nature equally. Multiply the payoffs for each decision by this equal weight and add the product. Choose the decision with the maximum weighted payoff.

There are two states of nature in this problem: bill passing or not passing. So, each state of nature is weighted equally, 0.50. Multiply the payoffs under each state of nature for each decision by 0.50 and add the product. Enter the formula =C5*C29+D5*C29 into cell C30, enter the formula =C6*C29+D6*C29 into cell C31, and enter =C7*C29+D7*C29 into cell C32.

Choose the decision with the maximum weighted payoff. Since $62,500 is the greatest profit, the Equal Likelihood Criterion results in constructing a shopping center.

Answer:

Maximax Criterion - Select the maximum payoff for each decision. Then, select the maximum of those maximum payoffs.

Maximin Criterion - Select the minimum payoff for each decision. Then, select the maximum of those minimum payoffs.

a.

Excel can be used to identify the maximum payoff for each decision. First set up the excel file as shown below. Next, enter the number of yards the team will gain for a play based on the difference defenses the other team will run. Enter the formula =Max(C5:G5) into cell H5. Copy this formula into H6, H7, H8, H9, and H10. This formula finds the maximum number of yards for each play.

Enter the formula =Max(H5:H10) into cell C12 to find the maximum of the maximum payoffs. The result is 20 yards which means the Maximax decision is run a Pass.

b.

To find the minimum payoff for each decision, enter =Min(C5:G5) into cell I5. Copy this formula into cells I6, I7, I8, I9, and I10.

Enter the formula =Max(I5:I10) into cell C13 to find the maximum of the minimum payoffs. The result is losing 2 yards which means the Maximin decision is to run either Off Tackle or Option.

c.

Equal Likelihood Criterion - Weight each state of nature equally. Multiply the payoffs for each decision by this equal weight and add the product. Choose the decision with the maximum weighted payoff.

There are five states of nature in this problem. So, each state of nature is weighted equally,

. Multiply the number of yards under each state of nature by 0.20 and add the product for each play. Enter the formula =C5*C16+D5*C16+E5*C16+F5*C16+G5*C16 into cell C17, enter the formula =C6*C16+D6*C16+E6*C16+F6*C16+G6*C16 into cell C18, enter the formula =C7*C16+D7*C16+E7*C16+F7*C16+G7*C16 into cell C19, enter the formula =C8*C16+D8*C16+E8*C16+F8*C16+G8*C16 into cell C20, enter the formula =C9*C16+D9*C16+E9*C16+F9*C16+G9*C16 into cell C21, and enter the formula =C10*C16+D10*C16+E10*C16+F10*C16+G10*C16 into cell C22.

Choose the decision with the maximum weighted payoff. Since 6.8 is the highest weighted number of yards of all the plays, the Equal Likelihood Criterion results in running a Toss Sweep.