Maximin with expected value

The maximin criteria is nothing to do with expected values. If they decide on a selling price of $30 then if they sell 120,000 the profit will be: (120,000 x (30 - 11)) - 900,000 - 450,000 = $930,000 If they sell 110,000, then the profit will be: (110,000 x (30 - 11) - 900,000 - 450,000 = $740,000 If they sell 140,000, then the profit will be (140,000 x (30 - 11) - 900,000 - 450,000 = $1,310,000 Therefore with a selling price of $30, the worst outcome is a profit is $740,000. If you do the same calculations for a selling price of $35, then the worst outcome is a profit of $742,000. A selling price of $35 therefore gives the highest of the worst outcomes and is the decision under the maximin rules. I do suggest that you watch my free lectures on decision making under uncertainty where all the rules are explained with examples. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.

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