ACCA PM · Chapter 9 · Question 3 of 11
A bakery must decide the size of a daily order: small, medium or large. Daily demand may be low (probability 0.3), medium (probability 0.5) or high (probability 0.2). Profits ($) for each combination are: Small order: low 40, medium 40, high 40 Medium order: low 20, medium 60, high 60 Large order: low -10, medium 45, high 100 Which order size would be chosen using the maximin criterion?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Small
Explanation
Maximin selects the option whose worst outcome is the best. Worst outcomes: small $40, medium $20, large -$10. The small order has the highest minimum, so a pessimistic or risk-averse decision-maker would choose it.
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