Answer:
a) the small bus
b) the medium or large bus
c) the small bus
Explanation:
a) using the maximin criterion, the manager aims to maximize the least possible profit (a pessimistic approach), which results in the following profits:
Bus size Demand
Low Medium High
Small 50 60 70 → minimum profit = 50
Medium 40 80 90 → minimum profit = 40
Large 20 50 120 → minimum profit = 20
Thus, the optimal choice yielding the highest minimum profit is the small bus.
b) applying the maximin criterion, the manager will seek to minimize potential maximum losses, determining losses based on the best profit scenario:
Bus size Demand
Low Medium High
Small 0 -20 -50 → maximum loss = -50
Medium -10 0 -30 → maximum loss = -30
Large -30 -30 0 → maximum loss = -30
Hence, the option that bears the least maximum loss is either the medium or large bus.
c) for calculating the expected value of each option:
small = 30/100*50 + 30/100*60 + 40/100*70 = 61
medium = 30/100*40 + 30/100*80 + 40/100*90 = 72
large = 30/100*20 + 30/100*50 + 40/100*120 = 69
The small bus turns out to be the best choice, as it has the highest expected profit.
