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Question 2. A small business owner produces exclusively designed handmade bags. At the beginning of each week, she must made a decision about how many
Question 2. A small business owner produces exclusively designed handmade bags. At the beginning of each week, she must made a decision about how many bags to produce during that week. The setup cost is $100, and the unit production cost is $50. The holding cost for each bag not sold during the week is $40 (a maximum of 2 items can be stored). The demand during each week has a known probability distribution, namely, a probability of 0.5, 0.4 and 0.1 for 0, 1 and 2 bags, respectively. If the demand exceeds the supply available during the week, then those sales are lost and a shortage cost (including lost revenue) is incurred, namely, $80 and $320 for a shortage of 1 and 2 bags, respectively. Owner wants to minimize her (long-run) expected average cost per day. Formulate this model as an MDP and solve it via (a) Exhaustive enumeration, (b) LP formulation, (c) Policy iteration. Question 2. A small business owner produces exclusively designed handmade bags. At the beginning of each week, she must made a decision about how many bags to produce during that week. The setup cost is $100, and the unit production cost is $50. The holding cost for each bag not sold during the week is $40 (a maximum of 2 items can be stored). The demand during each week has a known probability distribution, namely, a probability of 0.5, 0.4 and 0.1 for 0, 1 and 2 bags, respectively. If the demand exceeds the supply available during the week, then those sales are lost and a shortage cost (including lost revenue) is incurred, namely, $80 and $320 for a shortage of 1 and 2 bags, respectively. Owner wants to minimize her (long-run) expected average cost per day. Formulate this model as an MDP and solve it via (a) Exhaustive enumeration, (b) LP formulation, (c) Policy iteration
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