Western Plastic Surgery Associates is planning on opening a cosmetic plastic surgery center in either Honolulu, San Francisco, or Seattle. There is a 60 percent chance that the demand for plastic surgery in the United States will increase in the near future, a 25 percent chance that the number will remain the same, and a 15 percent chance that the number will decrease. The developer estimates that the following profits would result from each decision given each set of economic conditions.
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Location
Increase (0.60}
Same (0.25)
Decrease (0.15)
Honolulu
$1,102,000
$856,000
$502,000
San Francisco
$720,000
$640,000
$602„000
Seattle
$800,000
$702,000
$220,000
Find the best decision using the following:
a. Develop a payoff table for this situation.
b. Find the following:
- Maximax
- Maximin
- Equal likelihood
- Minimax regret
c. Can you create a sensitivity graph comparing the different alternatives as the probabilities of increase, same, and decrease change? Why or why not?
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