The national sales manager for "I colored this" (ICT) T-shirts provides all salespersons with the payoff table shown next, giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What would be the best decision if the maximax strategy is used?
A) 1
B) 2
C) 3
D) 4

Question

The national sales manager for "I colored this" (ICT) T-shirts provides all salespersons with the payoff table shown next, giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown.  What would be the best decision if the maximax strategy is used?
A) 1 
B) 2 
C) 3 
D) 4

Quizplus · Accepted Answer

Using the maximax strategy, we choose the decision alternative that maximizes the maximum possible profit.

For each quantity option, the maximum payoff is shown below:

- Option 1: $240
- Option 2: $360
- Option 3: $360
- Option 4: $400

Therefore, the maximum possible payoff is $400, which occurs when we choose Option 4 (purchasing 4 dozen T-shirts). Thus, the best decision according to the maximax strategy is to purchase 4 dozen T-shirts.

The National Sales Manager for "I Colored This" (ICT) T-Shirts