Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 25

In Problem, Federated Electronics, Ltd., has hired a Washington, DC-based global trade research firm to assess the probabilities of each combination of port and government conditions for the five ports. The research firm probability estimates for the five ports are as follows:
a. Using expected value, determine the best port to construct the distribution center.
b. Using any decision criteria, determine the port you think would be the best location for the distribution center and justify your answer.
Problem
Federated Electronics, Ltd., manufactures display screens and monitors for computers and televisions, which it sells to companies around the world. It wants to construct a new warehouse and distribution center in Asia to serve emerging markets there. It has identified potential sites in the port cities Shanghai, Singapore, Pusan, Kaohsiung, and Hong Kong, and it has estimated the possible revenues for each (minus construction costs, which are higher in some cities, such as Hong Kong). At each site the projected revenues are primarily based on two factors-the economic conditions at the port, including the projected traffic, infrastructure, labor rates and availability, and expansion and modernization; and the future government situation, which includes the political stability, fees, tariffs, duties, and trade regulations. Following is a payoff table that shows the projected revenues (in $billions) for 6 years, given the four possible combinations for positive and negative port and government conditions:
Determine the port city Federated should select for its new distribution center using the following decision criteria.
a. Maximax
b. Maximin
c. Equal likelihood
d. Hurwicz ( =.55)