Reference no: EM132181490

Penny’s Rent A Car

Penny’s Rent a Car offers three rental plans as shown in Table 1. Please note that the fixed cost is provided in terms of months. Later, you will be asked to construct a cost table in terms of annual cost.

Table 1. Rental plan characteristics

Plan Fixed Monthly Payment Additional costs per annual miles

I $200 $0.095 per mile

II $300 $0.061 for each of the first 12,000 miles and $0.05 per mile thereafter

III $150 $0.10 for each of the first 12,000 miles and $0.20 per mile thereafter

A customer is considering which option to take. This customer estimates the likely annual mileage as shown in Table 2.

Table 2. Estimated annual mileage probabilities

Annual Miles 10,000 15,000 20,000 25,000 30,000

Probability 0.1 0.1 0.2 0.3 0.3

Create a cost matrix for this problem using total annual cost. Show all costs as negative values (i.e. accounting format).

1) What alternative is selected using the Maximax criterion?

2) What alternative is selected using the Maximin criterion?

3) What alternative is selected using the Expected Monetary Value criterion?

4) What alternative is selected using the Minimax Regret criterion?

5) What alternative is selected using the Expected Regret (or Expected Opportunity Loss) criterion?