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Suppose that by using dynamic programming. wve are solving the following machine replacement problem. which is similar to the one that we covered in class.

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Suppose that by using dynamic programming. wve are solving the following machine replacement problem. which is similar to the one that we covered in class. A company needs a special equipment for the following 6 years. The company must buy a new equipment now (at time 0 ). Then, at the beginning of each year (from the beginning of year 2 to the beginning of year 6 ), the company has to make a decision. if the equipment in use will be replaced or not. If a replacement decision is made, then the equipment in use will be sold and a new one will be bought. The cost of a new equipment is $3000. The company can use a newv machine for at most 3 years. The salvage values of the equipmeat are dependent on the age of equipment as given in Table 1. The revenues genemated by the equipment and the maintenance costs of the equipment are dependent on the operation year of the equipment as given in Table 2. We are using dynamic programming to find the 6 . year optimal replacement policy maximizing the net profit (revenue-salvage-cost) generated by the equipment in the following 6 years. Tahle 1 Stage t corresponds to the beginning of year t+1 for every t=0,1,,5. Stage 6 is the end of year 6 . The state at stage 0 is 0 ; the state at another stage is the age of the equipment in use just before making a. decision. We define the value function fk(i) for the subproblem consisting of stages t,t+1,,6 and the optimal decision (to attain ft(i)) at stage t,xz(i), as ft(i) : the maximum net profit generated by the equipment from stage t to stage 6 given that the state is i at stage t where for 1t5 xt(i)={1,iftheoptimaldecisionisreplacementwhenthestateisiatstaget0,iftheoptimaldecisionisdo-nothingwhenthestateisiatstaget Suppose that we have just found that f4(1)=3800,f4(2)=3200,f4(3)=2500. What are the values of f3(2) and x3(2), respectively

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