Question
Mr. Jerry Jones, the owner of a small bakery store, has designed a special cake for the forthcoming holidays. The production has to be in
Mr. Jerry Jones, the owner of a small bakery store, has designed a special cake for the forthcoming holidays. The production has to be in multiples of 10. He is very conservative decision maker for fearing if more ordered, he may not be able to sell all of them. You need to develop a spread sheet in excel for your decision making. Based on the past records, the following information is available:
Price/per | $20 | Cost per | $12 | Salvage/per | $2 |
Demand/units | 20 | 30 | 40 | 50 |
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Probability | 0.15 | 0.20 | 0.40 | 0.25 |
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You may develop your solution in the following table:
decision alternatives | Demand: | |||||
20 | 30 | 40 | 50 | EMV | ||
20 | Costs |
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| Sales |
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| Profit |
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| salvage |
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| payoff, or ex. Profit |
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30 | Costs |
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| Sales |
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| Profit |
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| salvage |
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| payoff, or ex. Profit |
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40 | Costs |
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| Sales |
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| Profit |
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| salvage |
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| payoff, or ex. Profit |
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50 | Costs |
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| Sales |
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| Profit |
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| salvage |
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| payoff, or ex. Profit |
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a. | expected value with perfect information (evwpi) is $300 | |
b. | best expected monetary value (emv) is (in units) $230 | |
c. | expected value of perfect information EOL (evpi) is $70 | |
d. | order under maximax approach is $40 | |
e. | order minimax approach is 40 | |
f. | his decision should be 40 |
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