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A departmental store has to decide on the level of supplies it must stock to meet the needs of its customers. The exact number
A departmental store has to decide on the level of supplies it must stock to meet the needs of its customers. The exact number of customers is not known but it is expected to be in one of the four categories E = 300, E = 350, E = 400andE = 450 Four levels of supplies are thus suggested with being ideal (from the view point of incurred costs), If the number of customers falls in category j. Deviations from the ideal levels results in additional costs either because extra supplies are stocked needlessly or because demand cannot be satisfied. The table below gives these costs in thousands of Shs. Supplies Level Customer category A A Az A E 8 13 21 28 E 11 10 11 26 E 24 21 15 24 E 33 25 22 18 i). What alternative would the store choose on the principle of minimax regret? (8 marks) ii). Will the alternative change if Hurwicz principle is applied? (a = 0.5) (7 marks)
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