Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
6th Edition
ISBN: 9781337115186
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: Cengage Learning
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Chapter 20.3, Problem 13E
Lawson’s Department Store faces a buying decision for a seasonal product for which demand can be high, medium, or low. The purchaser for Lawson’s can order 1, 2, or 3 lots of the product before the season begins but cannot reorder later. Profit projections (in thousands of dollars) are shown.
- a. If the prior probabilities for the three states of nature are .3, .3, and .4, respectively, what is the recommended order quantity?
- b. At each preseason sales meeting, the vice president of sales provides a personal opinion regarding potential demand for this product. Because of the vice president’s enthusiasm and optimistic nature, the predictions of market conditions have always been either “excellent” (E) or “very good” (V). Probabilities are as follows. What is the optimal decision strategy?
| P(E) = .7 | P(s1 | E ) = .34 | P(s1 | V ) = .20 |
| P(V) = .3 | P(s2 | E ) = .32 | P(s2 | V) = .26 |
| P(s3 | E) = .34 | P(s3 | V) = .54 |
- c. Compute EVPI and EVSI. Discuss whether the firm should consider a consulting expert who could provide independent forecasts of market conditions for the product.
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Chapter 20 Solutions
Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
Ch. 20.2 - Prob. 1ECh. 20.2 - Prob. 2ECh. 20.2 - 3. Hudson Corporation is considering three options...Ch. 20.2 - 4. Myrtle Air Express decided to offer direct...Ch. 20.2 - 5. The distance from Potsdam to larger markets and...Ch. 20.2 - 6. Seneca Hill Winery recently purchased land for...Ch. 20.2 - 7. The Lake Placid Town Council has decided to...Ch. 20.3 - Consider a variation of the PDC decision tree...Ch. 20.3 - 9. A real estate investor has the opportunity to...Ch. 20.3 - Dante Development Corporation is considering...
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