Problem -
Jerry Bildery's factory is considering three approaches for meeting an expected increase in demand. These three approaches are increasing capacity, using overtime, and buying more equipment. Demand will increase either slightly (S), moderately (M), or greatly (G). The profits for each approach under each possible scenario are as follows:
|
|
Demand Scenario
|
|
Approach
|
S
|
M
|
G
|
|
Increasing capacity
|
$700,000
|
$700,000
|
$700,000
|
|
Using overtime
|
$500,000
|
$600,000
|
$1,000,000
|
|
Buying equipment
|
$600,000
|
$800,000
|
$800,000
|
Since the goal is to maximize, and Jerry is risk-neutral, he decides to use the equally likely decision criterion to make the decision as to which approach to use. According to this criterion, which approach should be used?