The Sales and Service Dealer for a Diesel Equipment Manufacturer for the Sirsa Region of Haryana is faced with the following options The Diesel Equipment for which he is the dealer for Sirsa Region is dispatched by the manufacturing company in lots of FOUR at a time. Many a times the equipment is out of alignment when it is received at Sirsa, mainly due to a lot of handling right from the time it is loaded for the long transportation journey it has to undertake from somewhere near PUNE. It is the dealers responsibility / job to install all these equipments sold to / bought by customers in his territory. If an equipment reaches the location, where it has to be installed ( the site ), without any defect, then he is not entitled to any payment for the installation job he has to carry out. However, if the equipment reaches the site where it has to be installed with a defect, then he has to set the same RIGHT, for which he gets Rs. 300/- for each such machine / equipment that is found defective. Apparently, in this whole set of operations, there is an opportunity for him to hurriedly inspect any 2 of the lot of 4 machines at random and almost exactly make out, whether 0, 1 or both are defective or non-defective and he has the option ( irrespective of whether he hurriedly inspects the 2 machines or not ) given to him by the company that in case he accepts the responsibility of bearing all the costs ( approx. Rs. 300/- per machine found to be defective ) related to correcting the defect(s) if any found in a lot of 4 machines, at the time of the machines reaching Sirsa, then he can accept / take such responsibility for a lump sum payment of Rs. 800 per lot, by the company. From the past experience of many lots received at Sirsa, the dealer has discovered the probability distribution of the Number of defective machines per lot, to be as follows No. of Defective Machines Probability 1 0.15 2 0.25 3 0.35 4 0.15 5 0.10

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QUESTIONS : 1. What are OPTIONS the DEALER HAS ? 2. What are the PAYOFFs for these different OPTIONS ? What is his CHOICE in case he does not want to do any inspection of the machines on arrival in Sirsa ? 3. If on receipt of the lot of machines ( 4 in this case ) at SIRSA, the dealer had to pay Rs. 120/- for making an inspection of the 2 machines from the lot, would it be worthwhile to undertake the inspection of the machines then ?