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PARTI A vendor at a local baseball stadium must decide what course of action to take, sell ice cream or soft drinks at today's game.
PARTI A vendor at a local baseball stadium must decide what course of action to take, sell ice cream or soft drinks at today's game. Each soft drink costs $0.25 and is sold for $1.25 while each ice cream costs $0.45 and is sold for $2.45. If the weather is warm she forecasts demand of 200 drinks or 150 ice creams but if the weather is cold, she forecasts demand of 150 soft drinks or 45 ice creams. a. Compute the payoffs for each level of demand for warm and cold weather b. Construct a payoff table, indicating the events and alternative courses of action c. Construct an opportunity loss table. d. Construct a decision tree. Based on her past experience at this time of year, the vendor estimates the probability of warm weather as 0.60. e. Determine the optimal action based on the maximax criterion. f. Determine the optimal action based on the maximin criterion. g. Compute the expected monetary value (EMV) for action soft drinks and action ice cream. h. Compute the expected opportunity loss (EOL) for action soft drinks and action ice cream. i. Explain the meaning of the expected value of perfect information (EVPI) in this problem. j. Based on the results of (g) or (h), which action would you chose? Why? k. Compute the coefficient of variation for each action. 1. Compute the return to risk ratio (RTRR) for each action. m. Based on (k) and (1) above, what action would you choose? Why? n. Compare the results of (1) and (m) and explain any differences
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