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.
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Hey John:
I dont get how to, well, solve a minimax regret question. Take the question mentioned for example…..you mentioned in the session that we have to look at each uncertain variable in turn and analyse…what are the uncertain variables in this question?
Would be grateful if you state the general rule!
Regards,
SK
P.s. I have gone through the OT lecture….but still :S
ARRANGE THE VARIABLE COSTS AND FRANCHISE FEES IN MATRIX FIRST.
ASK YOUR SELF, IF THE VARIABLE COST IS $5, WHAT IS THE MAXIMUM NPV? AND THEN SUBTRACT THE AMOUNT YOU WILL LOOSE IF CHOSE A DIFFERENT FEE. I.E THE MAXIMUM NPV IS 4348226 AND YOU WILL LOOSE NOTHING ON FEE 18 ANDYOU WILL LOSE 340596(4348226-4007630) AND YOU WILL LOOSE 74043 (4348226-4274183)IF THE FEE IS 22 AND YOU CAN DO THE SAME FOR OTHER VARIABLE COSTS AND ONCE COMPLETE CHOOSE THE MAXIMUM YOU WILL LOOSE FROM EACH FRANCHISE FEE AND THEN LOOK FOR THE MINIMUM
I.E
18 20 22
5 0 340596 74043
6 177702 355404 0
7 42049446 444255 0
MAXIMUM 429446 444255 74043
CHOOSE THE MINIMUM WHICH IS 74043
THEREFORE SHOULD CHOOSE 22Try it now
Isaiah
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