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a. Construct the payoff table for this decision situation. b. Compute the expected value of each alternative amount of milk that could be stocked and select the best decision. c. Construct the opportunity loss table and determine the best decision. d. Compute the expected value of perfect information.

a. Construct the payoff table for this decision situation. b. Compute the expected value of each alternative amount of milk that could be stocked and select the best decision. c. Construct the opportunity loss table and determine the best decision. d. Compute the expected value of perfect information.

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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Please show how to answer this questions a), b) and c).
27. The Loebuck Grocery must decide how many cases of milk to stock each week to meet demand. The probability distribution of demand during a week is shown in the following table: Demand (cases) 5618 17 Probability .20 25 40 .15 1.00 Each case costs the grocer $10 and sells for $12. Unsold cases are sold to a local farmer (who mixes the milk with feed for livestock) for $2 per case. If there is a shortage, the grocer consid- ers the cost of customer ill will and lost profit to be $4 per case. The grocer must decide how many cases of milk to order each week. a. Construct the payoff table for this decision situation. b. Compute the expected value of each alternative amount of milk that could be stocked and select the best decision. c. Construct the opportunity loss table and determine the best decision. d. Compute the expected value of perfect information.
Transcribed Image Text:27. The Loebuck Grocery must decide how many cases of milk to stock each week to meet demand. The probability distribution of demand during a week is shown in the following table: Demand (cases) 5618 17 Probability .20 25 40 .15 1.00 Each case costs the grocer $10 and sells for $12. Unsold cases are sold to a local farmer (who mixes the milk with feed for livestock) for $2 per case. If there is a shortage, the grocer consid- ers the cost of customer ill will and lost profit to be $4 per case. The grocer must decide how many cases of milk to order each week. a. Construct the payoff table for this decision situation. b. Compute the expected value of each alternative amount of milk that could be stocked and select the best decision. c. Construct the opportunity loss table and determine the best decision. d. Compute the expected value of perfect information.
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