Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 36

A global economist hired by Microcomp, the U.S.-based computer manufacturer in Problem, estimates that the probability that the economic and political climate overseas and in Mexico will decline during the next 5 years is.40, the probability that it will remain approximately the same is.50, and the probability that it will improve is.10. Determine the best country to construct the new facility in and the expected value of perfect information.
Problem
Microcomp is a U.S.-based manufacturer of personal computers. It is planning to build a new manufacturing and distribution facility in either South Korea, China, Taiwan, the Philippines, or Mexico. It will take approximately 5 years to build the necessary infrastructure (e.g., roads), construct the new facility, and put it into operation. The eventual cost of the facility will differ between countries and will even vary within countries depending on the financial, labor, and political climate, including monetary exchange rates. The company has estimated the facility cost (in $1,000,000s) in each country under three different future economic and political climates, as follows:
Determine the best decision, using the following decision criteria.
a. Minimin
b. Minimax
c. Hurwicz ( =.4)
d. Equal likelihood