Skip to content

CMA Final · Strategic Cost Management · Decision Making using Probability

Profits (₹ lakh) of three options under three states are: A1: 50, 30, 20; A2: 40, 45, 25; A3: 30, 35, 60. Using the minimax regret criterion, what is the minimised maximum regret?

The minimax regret is ₹20 lakh, achieved by option A3. Building the regret table against column maxima of 50, 45 and 60 gives maximum regrets of 40 for A1, 35 for A2 and 20 for A3. The smallest of these is 20.

  1. A₹35 lakh
  2. B₹40 lakh
  3. C₹15 lakh
  4. D₹20 lakhCorrect

Explanation

Column maxima are 50, 45, 60. Regrets: A1 = 0, 15, 40 (max 40); A2 = 10, 0, 35 (max 35); A3 = 20, 10, 0 (max 20). The smallest of the maximum regrets is 20, for A3. The 35 option is A2's maximum regret, which is not the minimum.

Did you get it right without looking?

One question tells you little. A timed set on Decision Making using Probability shows your real accuracy, how long you take and where you lose marks.

Practise Decision Making using ProbabilityFree diagnostic mock

More Decision Making using Probability questions