ACCA PM · Chapter 9 · Question 1 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 maximax criterion?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Large
Explanation
Maximax selects the option with the highest possible payoff. The best outcomes are: small $40, medium $60, large $100. The large order offers the highest maximum, so an optimistic decision-maker would choose it.
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