Decision-Making Criteria for an Entrepreneur Printing T-shirts

Which course of action should the entrepreneur take for printing T-shirts?

What are the criteria used to determine the best course of action in this scenario?

The best course of action for the entrepreneur would be to print 15,000 T-shirts for the football game.

To determine the best course of action, we will analyze the options using different decision-making criteria.

1. Maximax Criterion

This criterion focuses on maximizing the maximum possible profit. Among the three options, printing 20,000 T-shirts yields the highest profit in the case of high demand. However, this criterion does not account for the probabilities of different demand scenarios. Thus, it may lead to a risky decision.

2. Maximin Criterion

This criterion aims to minimize the maximum possible loss. Printing 10,000 T-shirts results in the highest minimum profit across the different demand scenarios. However, it disregards the potential gains from higher demand scenarios, which may limit the entrepreneur's profit potential.

3. Minimum Regret/Salvage Criterion

This criterion considers the opportunity cost of choosing a particular option. By comparing the profits of each option in different demand scenarios, we can assess the regrets associated with not choosing the most profitable option for each scenario. Printing 15,000 T-shirts provides a balance between potential profits and regrets.

4. Laplace Criterion

This criterion assigns equal probability to all demand scenarios. Calculating the expected profit for each option by taking the average of the profits across demand scenarios, printing 15,000 T-shirts again emerges as the best choice due to its higher expected profit compared to the other options.

Considering the analysis above, the best course of action for the entrepreneur is to print 15,000 T-shirts for the football game. This option balances potential profits across different demand scenarios, taking into account both the upside and downside risks.