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: DemandDemandDemandStaffing OptionsHighMediumLowOwn staff352325300Outsider vendor450300150Combination400325250 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

1. note: if payoff was profit and not cost, max formula would have been used. conservative…

Answered: HERO Corporation is considering three…

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ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

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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