A firm wishes to choose the location for a new factory. Profits obtained will depend on whether a new railroad spur is constructed to serve the town in which the new factory will be located. The following payoff table summarizes the relevant information:
New Railroad No New Railroad
Alternatives Spur Built Spur
Location A $1* $14
Location B 2 10
Location C 4 6
*Profits in $ millions.
Determine the location that should be chosen if the firm uses the maximax criterion. (Enter your answers in millions.)
Maximum payoff for each alternative:
Location A $ M
Location B $ M
Location C $ M
Maximax payoff: Location at M