Decision Analysis |
Homework #8
A local company is trying to decide if it should stock a perishable product each week. The Product cost the company $20 per unit, and can be sold for $25 per unit. Any product not sold by the end of the week can be sold for a salvage value of $5 per unit. The company changes itself $1 per unit for lost sales. There is a $20 per week fixed cost for stocking this product. The Probability of demand for 50, 60, and 75 units is 0.6, 0.3, and 0.1 respectfully.
Construct the decision matrix to help the company decide if they should stock this product and, if so, at what level, including the probability for each state of nature. Find the decision using:
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| MAXIMAX
MAXIMIN LaPlace-Bayes Expected Return Expect Value for Perfect Information
What is your recommendation to the company and why? |