Answered: You want to buy electric energy. You…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question: You want to buy electric energy. You can buy from company A, B, C, or D, but you must choose only one. You obtain past data on these four suppliers, and you then determine that the prices for some of them have been quite volatile, influenced by the state of the economy (recession, stagnation, and inflation). You assess this data given in the table in the picture attached.

a) Assuming that you simply want to minimize your average costs over the long run, determine the expected costs for all energy suppliers. Select the supplier based on minimum expected cost.

b) Assuming that you cannot afford any surprises and therefore want to minimize his uncertainty, determine the standard deviation for each supplier. Select the supplier based on minimum variance (same as minimum standard deviation).

Costs ($/MW-hr)
E (cost)
Energy seller
Recession Stagnation Inflation (pls. fill in) | (pls. fill in)
A.
40
60
80
B
20
30
81
30
40
51
D
50
50
50
Probability of economic state
0.15
0.35
0.5

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