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S&B Manufacturing Inc., a manufacturer of packaging products is attempting to select a short run strategy which maximizes the long run value of expected future profits. Their long run value will depend upon their competitor's response. The controller projects the following expected future profits, cost and revenue equations.
States of Nature
S&B's
Decision
Alternatives
Maximize
Revenue
Profits
Maximize Revenue
$6 million
$8 million
Maximize Profit
$2 million
$14 million
TR = 1600q -2q2
P = 1600-2q
MR = 1600 -4q
q = 50L1/2k1/2
MPL=25L-1/2k1/2
MPK=25L1/2k-1/2
Price of Labor = $25
Price of Capital = $100
MC = 2
A) Which decision alternative should S&B chose given a maximin criterion?
B) Calculate the opportunity loss or regret matrix.
C) Which decision alternative should S&B chose given a minimax regret criterion?
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