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Chapter 2

Answer (cont.)

(d) Minimax regret

The minimax regret strategy is the one that minimises the maximum
regret (opportunity cost). A regret table should be used:

Daily supply regret (opportunity cost)

Daily
demand 40 salads 50 salads 60 salads 70 salads

40 salads Right decision $80 (W1) $160 (W1) $240 (W1)

Right
50 salads $20 $80 $160
decision

Right
60 salads $40 $20 $80
decision

Right
70 salads $60 $40 $20
decision
––––– ––––– ––––– –––––

Maximum $60 $80 $160 $240
regret =

Therefore, to minimise the maximum regret, 40 salads should be
supplied.

(W1) If daily demand is 40 salads, it would be the right decision for the
business to supply 40 salads since the profit of supplying 40 salads
is the highest, i.e. $80.

 If the business decided instead to supply 50 salads, the regret
(opportunity cost) would be the $80 it could have made supplying
40 salads less the $0 it did make supplying 50 salads = $80.

 If the business decided instead to supply 60 salads, the regret
(opportunity cost) would be the $80 it could have made supplying
40 salads less the $80 loss it did make supplying 60 salads = $160.

 If the business decided instead to supply 70 salads, the regret
(opportunity cost) would be the $80 it could have made supplying
40 salads less the $160 loss it did make supplying 70 salads =
$240.

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