Project #89160 - For PhyzKyd

An appliance dealer must decide how many (if any) new microwave ovens to order for next month. The ovens cost $220 and sell for $300. Because the oven company is coming out with a new product line in two months, any ovens not sold next month will have to be sold at the dealer's half price clearance sale.  Additionally, the appliance dealer feels he suffers a loss of $25 for every oven demanded when he is out of stock. On the basis of past months' sales data, the dealer estimates the probabilities of monthly demand (D) for 0, 1, 2, or 3 ovens to be .35, .4, .15, and .1, respectively.  

                       Note:

                       -Decision alternative (Whether the dealer should buy (order)  0, 1, 2 or 3 ovens??)

                       -States of Nature (The demand by customers of 0, 1, 2 or 3 ovens)

                       -This is a profit table.       

                       - Assume that the unsold ovens will be purchased at the clearance sale.  So. instead of the    

                        dealer losing the entire $220 on an unsold oven, they will only  lose $70 (220-150).  

                                           

 

Demand For Ovens

Ovens Ordered

0

1

2

3

0

      0

25

50

-75

1

  −70

  80

  55

  30

2

140

  10

160

135

3

-210

60

90

240

 

What is the best decision, if the dealer uses

a. (8 pts) the minmax regret approach,

b. (4 pts) the conservative approach,

c. (4 pts) the optimistic approach.

d. (6 pts) How much should this dealer be willing to pay to have perfect information regarding the demand of the ovens? Explain.

Subject Business
Due By (Pacific Time) 10/25/2015 12:00 am
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