HERO Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of pesos) depends on demand as follows: Demand Demand Demand Staffing Options High Medium Low Own staff 352 325 300 Outsider vendor 450 300 150 Combination 400 325 250 If the decision maker knows nothing about the probabilities of the four states of nature, what is the recommended decision using: i. the optimistic approach and the conservative approach iii. the minimax regret approach iv. the Laplace method
HERO Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of pesos) depends on demand as follows: Demand Demand Demand Staffing Options High Medium Low Own staff 352 325 300 Outsider vendor 450 300 150 Combination 400 325 250 If the decision maker knows nothing about the probabilities of the four states of nature, what is the recommended decision using: i. the optimistic approach and the conservative approach iii. the minimax regret approach iv. the Laplace method
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 6DRQ
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HERO Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of pesos) depends on demand as follows:
Demand | Demand | Demand | |
Staffing Options | High | Medium | Low |
Own staff | 352 | 325 | 300 |
Outsider vendor | 450 | 300 | 150 |
Combination | 400 | 325 |
250 |
If the decision maker knows nothing about the probabilities of the four states of nature, what is the recommended decision using:
i. the optimistic approach and the conservative approach
iii. the minimax regret approach
iv. the Laplace method
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