Decision Theory

Instructions: Solve and answer the word problems using spreadsheets or excel following the different techniques in decision-making.

3. The Yakult Hut Company sell natural Yakult in Business and Management's College.

Marites, the manager, is filling out the order for the next week's supply of Yakult. She is uncertain what the sales will be. Marites obtained the table below as a historical representation of profits given certain sales and buying level combinations.

Stocks Stock Action

Sales

Weekly sales in $ Buy 200 Buy 300 Buy 400

200 50 25 0

300 50 75 50

400 50 75 100

Using the maximax criterion, what advice can be given to Marites about the quantities of Yakult to be sold next week?

4. The New Era Toy Co. manufactures children's wooden toys. The company believes that he current trend towards sturdier and simpler toys will continue. Thus, New Era must decide on what action to take from among the three alternative methods of providing for the anticipated higher demand for each product. The options include completely overhauling the existing plant and installing computerized woodworking machinery, expanding the current plant and adding more machinery, or buying a competitor's available plant. A fourth alternative is to limit production to the current plant (do nothing).

New Era's payoff is as follows:

State of Nature Alternatives

Demand Overhaul Expand Buy Do nothing

High 30,000 60,000 50,000 3,000

Moderate 10,000 20,000 15,000 2,000

Low -5,000 -10,000 -20,000 -1,000

Failure -50,000 -70,000 -60,000 -5,000

The New Era management has no information on how demand will be likely to shape up.

Using the criterion of realism with a = 0.80, determine the choice for New Era under this condition.