Mick Karra is the manager of MCZ Drilling products whichproduces a variety of specialty valves for oil field equipment.Recent activity in the oil fields has cause ddemand to increasedrastically, and a decision has been made to open a newmanufacturing facility. Three locations are being considered, andthe size of the facility would not be the same in each locationThus, overtime might be necessary at times. The folowing tablegives the total monthly cost (in 1000s) for each possible locationunder each demand posibility. The probabilities for the demandlevels have been determined to be 20% for low demand, 30% formedium demand, and 50% for high demand
Demand is Low Demand is medium Demand is High Ardmore, OK 85 110 150 Sweetwater, TX 90 100 120 Lake Charles, LA 110 120 130
(a) Which location would be selected based on the optimisticcriterion?
(b) which location would be selected based on the pessimisticcriterion?
(c) which location would be selected based on the minimax regretcriterion?
(d) which location should be selected to minimize the expectedcost of operation?
(e) How much is a perfect forecast of the demand worth?
(f) which location would minimize the expected opportunityloss?
(g) what is the expecetd value of perfect information in thissituation?
Mick Karra is the manager of MCZ Drilling products whichproduces a variety of specialty valves for oil field equipment.Recent activity in the oil fields has cause ddemand to increasedrastically, and a decision has been made to open a newmanufacturing facility. Three locations are being considered, andthe size of the facility would not be the same in each locationThus, overtime might be necessary at times. The folowing tablegives the total monthly cost (in 1000s) for each possible locationunder each demand posibility. The probabilities for the demandlevels have been determined to be 20% for low demand, 30% formedium demand, and 50% for high demand
| Demand is Low | Demand is medium | Demand is High | |
| Ardmore, OK | 85 | 110 | 150 |
| Sweetwater, TX | 90 | 100 | 120 |
| Lake Charles, LA | 110 | 120 | 130 |
(a) Which location would be selected based on the optimisticcriterion?
(b) which location would be selected based on the pessimisticcriterion?
(c) which location would be selected based on the minimax regretcriterion?
(d) which location should be selected to minimize the expectedcost of operation?
(e) How much is a perfect forecast of the demand worth?
(f) which location would minimize the expected opportunityloss?
(g) what is the expecetd value of perfect information in thissituation?
