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 .3, .4, .2, and .1, respectively.

HINTS:

-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	D
1	70	80	C	30
2	140	B	160	135
3		60	90	240

a. What are the values of A,B, C and D in the payoff table below?

b. How much should this dealer be willing to pay to have perfect information regarding the demand of the ovens? Explain.

c. What decision should be made if the dealer uses the minimax regret approach?