Explain decision making under uncertainty, Operation Management

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Even though independent gasoline stations have been having a difficult time, Susan Helms has been thinking about starting her own independent gasoline station. Susan's problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table:

STATE OF NATURE

Size of First Station GOOD MARKET FAIR MARKET POOR MARKET

Small 40,000 18,000 -8,000

Medium 90,000 27,000 -22,000

Large 105,000 27,500 -36,000

Very Large 320,000 26,000 -180,000

For example, if Susan constructs a small station and the market is good, she will realize a profit of 40,000.

1) Using the decision making under uncertainty with the criterion of Maximax

The appropriate decision will be ___________ (Very large, large, medium or small)

The value of the return under this decision is $_____________

2) Using the decision making under uncertainty with the criterion of Maximin

The appropriate decision will be ___________ (Very large, large, medium or small)

The value of the return under this decision is $_____________

3) Using the decision making under uncertainty with the criterion of Equally Likely

The appropriate decision will be ___________ (Very large, large, medium or small)

The value of the return under this decision is $_____________


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