The demand for widgets is either 200, 300, or 400 units each month. You have two processes to manufacture widgets. Process A has a fixed cost of Rs.8000 and a variable cost of Rs.100 per widget. Process B has a fixed cost of Rs.16,000 and a variable cost of Rs.70 per widget. The selling price of widgets is Rs.200 per unit.
a. Which process would you use if you use an optimistic decision-making criterion?
b. Which process would you use if you use a pessimistic decision-making criterion?
c. What would be the maximum regret if you decided to use Process A?
d. Which process would you use if you minimized the maximum regret?