John works for a service company through an agency. The agency contacts John on the last working day of the month to inform him of the hours his services are needed by the company in the following month. He is paid 200 per day worked and is expected to work for eight hours a day. Half days are not allowed based on the contract. John can choose to work less but no more than the demand. The demand for his service is uncertain and John has provided the following information based on past monthly demands: Demand Very busy month 160 hours Moderately busy month 80 hours Less busy month 16 hours John will need to incur bus transportation costs of 100 every day he goes to work. The bus fills up very quickly and it is impossible to purchase a ticket after 25th of each month. Flexible transportation tickets are offered at 180 for two days, 850 for ten days and 1,650 for one month. Ignore tax and assume that food consumed will cost the same whether he is at home or at work. Also ignore savings on home utilities when he is at work. a. Prepare a contribution payoff table for the different possible outcomes for each decision option. [6 marks] b. John has heard about decision criteria under uncertainty, but he does not understand how they influence his decisions. Using the payoff table calculated in (a) above, explain maximin criterion. [2 marks] c. John has heard about risk and value of perfect information but does not know what these terms mean. In no more than 200 words, critically discuss how the understanding of risk and value of perfect information can be of benefit to John in his decision-making. Use examples and show all workings. [7 marks] [total 15 marks] John works for a service company through an agency. The agency contacts John on the last working day of the month to inform him of the hours his services are needed by the company in the following month. He is paid 200 per day worked and is expected to work for eight hours a day. Half days are not allowed based on the contract. John can choose to work less but no more than the demand. The demand for his service is uncertain and John has provided the following information based on past monthly demands: Demand Very busy month 160 hours Moderately busy month 80 hours Less busy month 16 hours John will need to incur bus transportation costs of 100 every day he goes to work. The bus fills up very quickly and it is impossible to purchase a ticket after 25th of each month. Flexible transportation tickets are offered at 180 for two days, 850 for ten days and 1,650 for one month. Ignore tax and assume that food consumed will cost the same whether he is at home or at work. Also ignore savings on home utilities when he is at work. a. Prepare a contribution payoff table for the different possible outcomes for each decision option. [6 marks] b. John has heard about decision criteria under uncertainty, but he does not understand how they influence his decisions. Using the payoff table calculated in (a) above, explain maximin criterion. [2 marks] c. John has heard about risk and value of perfect information but does not know what these terms mean. In no more than 200 words, critically discuss how the understanding of risk and value of perfect information can be of benefit to John in his decision-making. Use examples and show all workings. [7 marks] [total 15 marks]
