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Hi
Can someone explain the solution for Q4 part b were the maximum regret is calculated for 3 options.
I watched a video on maximax/least regret calculation but this question has me baffled.
For example were option 1 is calculated with demand at 50 million, an amount of 0 is calculated in solution. I don’t understand how could it be 0?
I wish there was some workings showing how these figures are calculated but solution does not have any.
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The zero value is not a calculated value but a “starting point” where you ask at each option a question -what is the maximum value that the option would give me at the given demand-
so in first line you have 50m and the values are 4, -8 and -32. So as a starting point- the highest value you have 8 – which you mark then zero as a staring value to work your way through the table. for option 2 you have -8 and you should deduct the 4 to arrive at -12, followed by option 3- -32 less 4 is -36
in second row where value is 60 your starting point is Option 2- where there is a highest value 16. You replace this with zero value as a starting point and in Option 2 you take value 6 and take away 16 which gives you -10 and Option 3 where the value is -24 you deduct 16 which gives you -40.
same in raw 3
At the end you look at the table and select the maximum regret i.e. the lowest value of each of the option- i.e Option one was value -11 (70m demand) option 2 was -12 from 50m demand and Option 3 was -40 from 50m demand.
Now you look at which is the highest of this 3 options- in this case is value -11- this means they should go for 70 milion.
I hope this helps and good luck on Wednesday
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