The 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

Quizplus · Accepted Answer

The maximax criterion selects the alternative with the highest possible payoff for each state of nature. In this case, for each state of nature, alternative 2 has a higher payoff than alternative 1. Therefore, the best alternative using the maximax criterion is alternative 2.

The Alternatives 1 and 2 in the Following Payoff Table