Wps Entire Book

Q.No.
6
A food product company is contemplating the introduction of a revolution any new product
with new packaging to replace the existing product with at much higher price (A1) or a moderate change
in the composition of the existing produt with a new packaging at a small increase in price (A2) or a small
change in the composition of the existing product except the word 'New' with a negligable increase in price
(A3). The three possible states of nature are (a) high increase in sales(S1). No change in sales S2 and c) decrease
in sales (S3). The marketing department of the company worked out the pay offs in terms of yearly net profits
for each of the strategies of these events (expected sales). This is represented in the adjoining table.
Pay offs(in '000' Rs.)

State of nature
Act A1 Act A2 Act A3
S1 70 50 30
S2 30 45 30
S3 15 0 30
A1 Introduce a new product with new packaging at a much higher price.

A2 Make a moderate change in the composition with new packaging at a small increase in price.
A3 Make a small change in the composition (except the word 'New') with a negligible increase in price.
a)
Maximin Criterion
Strategy(Action) Act A1 Act A2 Act A3

Payoff 15 0 30
So Action 3rd(A3) would be the maximin ( Pessimistic criterion)

b)
Maximax Criterion

Payoff 70 50 30
So, the action 1st(A1) would be the maximax criterion State of Pay offs(in '000' Rs.)
c) nature Act A1 Act A2 Act A3 MAX
Minimax regret criterion S1 70 50 30 70
We have, S2 30 45 30 45
Regret Table S3 15 0 30 30

State of nature
S1 70-70 70-50 70-30
S2 45-30 45-45 45-30
S3 30-15 30-0 30-30
State of nature
S1 0 20 40
S2 15 0 15
S3 15 30 0

Payoff 15 30 40
So, minimax regret criterion is A1

Q.No.7
Prepare regret table from the given conditional profit table:
Event(D Act(Purchase) or Decision alternatives

emand) 25 26 27 28 MAX
25 50 42 34 26 50
26 50 52 44 36 52
27 50 52 54 46 54
28 50 52 54 56 56
Regret Table
Event(D Act(Purchase) or Decision alternatives
emand) 25 26 27 28
25 0 8 16 24
26 2 0 8 16
27 4 2 0 8
28 6 4 2 0
Under an employment
the buses during
No. of copies sold
Cost per copy of magazine

He cannot return
a) Construct a payoff
b) Calculate the expected
a) Construct a payoff
Stock(strategy) 10
10 20 X 10
11 50 X 10-30 X 11
12 50 X 10-30 X 12
13 50 X 10-30 X 13
14 50 X 10-30 X 14
Stock(strategy) 10
10 200
11 170
12 140
13 110
14 80
b) Calculate the expected
Stock(strategy) 10
10 200
11 170
12 140
13 110
14 80
Probability 0.1
The EMV for Stock

stock, considering
numerical value that
Stock 10
Stock 11
Stock 12
Stock 13
Stock 14
Pi
Q.no.9
employment promotion programme, it is proposed to allow sale of newspapers on

peak hours. A newspaper boy has the following probability of selling a magazine
sold
Probability
magazine is Rs. 30 and sale price per copy is Rs. 50

return unsold copies where salvage value is zero.
payoff table.
expected monetary value (EMV) for each strategy.
Solution :
Demand(State of nature)
payoff table.
Payoff Table
Demand (State of Nature)
11
20 X 10
20 X 11
50 X 11-30 X 12
50 X 11-30 X 13
50 X 11-30 X 14
Payoff Table
11
200
220
190
160
130
expected monetary value (EMV) for each strategy.
Payoff Table
11
200
220
190
160
130
0.15
Stock 10 represents the average expected financial outcome for that

considering the probabilities of different demand levels. It provides a single
that summarizes the financial expectation for investing in Stock 10.
EMV =
Calculating All stocks EMV values in the table
200 X 0.1 + 200 X 0.15+200 X 0.2+200 X 0.25+200 X 0.3

170 X 0.1 + 220 X 0.15+220 X 0.2+220 X 0.25+220 X 0.3
140 X 0.1 + 190 X 0.15+240 X 0.2+240 X 0.25+240 X 0.3
110 X 0.1 + 160 X 0.15+210 X 0.2+260 X 0.25+260 X 0.3
80 X 0.1 + 130 X 0.15+180 X 0.2+230 X 0.25+280 X 0.3
Payoff where the each stock are equal to the demand as the name assigned Perfect information
250
10 11 12 13 14
0.1 0.15 0.2 0.25 0.3
Given,
Cost price (CP) = Rs. 30
Selling Price (SP) = Rs. 50
Marginal Profit = SP-CP 20
Marginal loss = CP Rs. 30
When Stock <= Demand

Conditional Profit = MP X Stock
Conditional Profit = 20 X S
When Stock > Demand
Conditional Profit = MP X Demand -(S-D) X CP
= 20 X D-(S-D)*30
= 20D-30S+30D
50D-30S
12 13 14
20 X 10 20 X 10 20 X 10
20 X 11 20 X 11 20 X 11
20 X 12 20 X 12 20 X 12
50 X 12-30 X 13 20 X 13 20 X 13
50 X 12-30 X 14 50 X 13-30 X 14 20 X 14
12 13 14
200 200 200
220 220 220
240 240 240
210 260 260
180 230 280
12 13 14
200 200 200
220 220 220
240 240 240
210 260 260
180 230 280
0.2 0.25 0.3
Interpretation
So the probability
highest sales would
∑(Payoff x Prob.) While there is no
EMV
200.0
215.0
222.5
220.0
205.0
probability estimation can be based upon historical data such as days accordingly
would be given the more weight and following the subsquent process.
deviation to the stock 10 with respect to the all demands which does not matter.
Q.No 13
Birgunj
Prob Payoff(PROFIT)
Prob X Payoff(PROFIT) Prob
0.2 60 12.0 0.15
0.65 85 55.3 0.75
0.15 120 18.0 0.1
EMV 85.3
Expected Payoff(PROFIT) in Birgunj 852,500 Expected Payoff(PROFIT)
Transportation cost from Pokhara to Birgunj Transportation cost from

250,000
Net PayOFF after deducting Transportation cost Net PayOFF after deducting
= 852500 - 250000
= 602,500
So, Biratnagar have high payoff even after adjusting the corresponding
cost. For that reason, Company should expand it’s business
Biratnagar
Payoff(PROFIT)
Prob X Payoff(PROFIT)
57.5 8.6
82.5 61.9
125 12.5
EMV 83.0
Payoff(PROFIT) in Biratnagar
830,000
from Pokhara to Biratnagar

180,000
deducting Transportation cost
= 830000 - 180000
= 650,000
corresponding transportation
business to Biratnagar.
Q.No.20
Solution:
SELECT TYPE State of Nature Probabilty Available YES
Enter State of Nature 15 16 17 18 19 20 21
Probability 0.12 0.17 0.26 0.23 0.15 0.05 0.02
Given, ENTER
Cost price (CP) = 7550
Selling Price (SP) = 8995
Marginal loss = CP 7550
When stock <= Demand

Conditional Profit = MP X stock
1445 X S
When stock > Demand
Conditional Profit = MP X Demand -(S-D) X ML
= 1445 X D-(S-D) X 7550
= 1445D-7550S+7550D
= 8995D-7550S
a) Construct a payoff table.
Payoff Table
State of Nature
Strategy
15 16 17 18 19 20 21
15 1445 X 15 1445 X 15 1445 X 15 1445 X 15 1445 X 15 1445 X 15 1445 X 15
16 8995 X 15-7550 X 16 1445 X 16 1445 X 16 1445 X 16 1445 X 16 1445 X 16 1445 X 16
17 8995 X 15-7550 X 17 8995 X 16-7550 X 17 1445 X 17 1445 X 17 1445 X 17 1445 X 17 1445 X 17
18 8995 X 15-7550 X 18 8995 X 16-7550 X 18 8995 X 17-7550 X 18 1445 X 18 1445 X 18 1445 X 18 1445 X 18
19 8995 X 15-7550 X 19 8995 X 16-7550 X 19 8995 X 17-7550 X 19 8995 X 18-7550 X 19 1445 X 19 1445 X 19 1445 X 19
20 8995 X 15-7550 X 20 8995 X 16-7550 X 20 8995 X 17-7550 X 20 8995 X 18-7550 X 20 8995 X 19-7550 X 20 1445 X 20 1445 X 20
21 8995 X 15-7550 X 21 8995 X 16-7550 X 21 8995 X 17-7550 X 21 8995 X 18-7550 X 21 8995 X 19-7550 X 21 8995 X 20-7550 X 21 1445 X 21
Payoff Table
State of Nature
Strategy
15 16 17 18 19 20 21
15 21675 21675 21675 21675 21675 21675 21675
16 14125 23120 23120 23120 23120 23120 23120
17 6575 15570 24565 24565 24565 24565 24565
18 -975 8020 17015 26010 26010 26010 26010
19 -8525 470 9465 18460 27455 27455 27455
20 -16075 -7080 1915 10910 19905 28900 28900
21 -23625 -14630 -5635 3360 12355 21350 30345
b) Calculate the expected monetary value (EMV) for each strategy.

Payoff Table
State of Nature
Strategy
15 16 17 18 19 20 21
15 21675 21675 21675 21675 21675 21675 21675
16 14125 23120 23120 23120 23120 23120 23120
17 6575 15570 24565 24565 24565 24565 24565
18 -975 8020 17015 26010 26010 26010 26010
19 -8525 470 9465 18460 27455 27455 27455
20 -16075 -7080 1915 10910 19905 28900 28900
21 -23625 -14630 -5635 3360 12355 21350 30345
Probability 0.12 0.17 0.26 0.23 0.15 0.05 0.02
EMV = ∑(Payoff x Prob.)
Calculating All Copys EMV values in the table

EMV
6575 X 0.12 + 15570
X 0.17+24565 X
0.26+24565 X
Strategy 10 0.23+24565 X 0.15 21675.0
-975 X 0.12 + 8020 X
0.17+17015 X
0.26+26010 X
Strategy 11 0.23+26010 X 0.15 22040.6
-8525 X 0.12 + 470 X
0.17+9465 X
0.26+18460 X
Strategy 12 0.23+27455 X 0.15 20877.1
-16075 X 0.12 + -
7080 X 0.17+1915 X
0.26+10910 X
Strategy 13 0.23+19905 X 0.15 17374.8
-23625 X 0.12 + -
14630 X 0.17+-5635
X 0.26+3360 X
Strategy 14 0.23+12355 X 0.15 11803.7
So, Strategy 11 should be Selected with the highest EMV 22040.6
Expected Payoff with the perfect information
EPP i Payoff where the Strategy and State of Nature are perfectly matched as predetermined
6575X0.12+8020X0.17+9465*0.26+10910*0.23+12355X0.15
8975.85
Q.No.17 A stocklist of a particular commodity makes a profit of Rs. 30 on each sales made within the same week of
purchase otherwise he incurs a loss of 30 on each item. The data on the past sales are given below.
No of
items sold
within the 5 6 7 8 9 10 11
same
week
Frequency 0 9 12 24 9 6 0
a. Find out the optimal number of items the stockist should buy every week in order to maximize the profit
b. Find out the optimal number of units based on expected opportunity loss criterion.
c. Comment on the results (a) and (b).
Given,
Assuming that there is no salvage value.
Marginal loss = Rs. 30
Cost price of the commodity = Rs. 30
Profit = Rs. 30
SP of the commodity = CP + Profit
30 + 30
60
Converting Frequency to the probability
The rationale is that the more frequently an event occurs in the past, the higher the probability that it will occur in the future.
No of
items sold
within the 5 6 7 8 9 10 11
same
week
Frequency 0 9 12 24 9 6 0
Probability 0 0.15 0.2 0.4 0.15 0.1 0
When stock <= demand

Conditional profit = MARGINAL PROFIT * STOCK
= 30 X S
= 30S
When stock > demand

MARGINAL PROFIT * Demand - (Stock- demand) X Marginal Loss
MP X D - (S-D) X ML
30D-(S-D) X 30
30D-30S+30D
60D-30S
Stock Demand (State of nature)

(Strategy) 5 6 7 8 9 10 11
5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5
6 60 X 5 - 30X6
30 X 6 30 X 6 30 X 6 30 X 6 30 X 6 30 X 6
7 60 X 5 - 30X7
60 X 6 - 30X7 30 X 7 30 X 7 30 X 7 30 X 7 30 X 7
8 60 X 5 - 30X8
60 X 6 - 30X8 60 X 7 - 30X8 30 X 8 30 X 8 30 X 8 30 X 8
9 60 X 5 - 30X9
60 X 6 - 30X9 60 X 7 - 30X9 60 X 8 - 30X9 30 X 9 30 X 9 30 X 9
10 60 X 5 - 30X10
60 X 6 - 30X10 60 X 7 - 30X10 60 X 8 - 30X10 60 X 9 - 30X10 30 X 10 30 X 10
11 60 X 5 - 30X11
60 X 6 - 30X11 60 X 7 - 30X11 60 X 8 - 30X11 60 X 9 - 30X11 60 X 10 - 30X11 30 X 11

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330
Probability 0 0.15 0.2 0.4 0.15 0.1 0
Calculating All stocks EOL(Expected opportunity loss) values in the table EOL
Stock 5 150 X 0 + 150 X 0.15 + 150 X 0.2 + 150 X 0.4 + 150 X 0.15 + 150 X 0.1 + 150 X 0 150
Stock 6 120 X 0 + 180 X 0.15 + 180 X 0.2 + 180 X 0.4 + 180 X 0.15 + 180 X 0.1 + 180 X 0 180
Stock 7 90 X 0 + 150 X 0.15 + 210 X 0.2 + 210 X 0.4 + 210 X 0.15 + 210 X 0.1 + 210 X 0 201
Stock 8 60 X 0 + 120 X 0.15 + 180 X 0.2 + 240 X 0.4 + 240 X 0.15 + 240 X 0.1 + 240 X 0 210
Stock 9 30 X 0 + 90 X 0.15 + 150 X 0.2 + 210 X 0.4 + 270 X 0.15 + 270 X 0.1 + 270 X 0 195
Stock 10 0 X 0 + 60 X 0.15 + 120 X 0.2 + 180 X 0.4 + 240 X 0.15 + 300 X 0.1 + 300 X 0 171
Stock 11 -30 X 0 + 30 X 0.15 + 90 X 0.2 + 150 X 0.4 + 210 X 0.15 + 270 X 0.1 + 330 X 0 141
b) Find out the optimal number of units based on the expected opportunity loss criterion.
Demand (State of nature)

Stock (Strategy)
5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330
Maximum profit in
each demand 150 180 210 240 270 300 330

Stock (Strategy)
5 6 7 8 9 10 11
5 150 - 150 180 - 150 210 - 150 240 - 150 270 - 150 300 - 150 330 - 150
6 150 - 120 180 - 180 210 - 180 240 - 180 270 - 180 300 - 180 330 - 180
7 150 - 90 180 - 150 210 - 210 240 - 210 270 - 210 300 - 210 330 - 210
8 150 - 60 180 - 120 210 - 180 240 - 240 270 - 240 300 - 240 330 - 240
9 150 - 30 180 - 90 210 - 150 240 - 210 270 - 270 300 - 270 330 - 270
10 150 - 0 180 - 60 210 - 120 240 - 180 270 - 240 300 - 300 330 - 300
11 150 - -30 180 - 30 210 - 90 240 - 150 270 - 210 300 - 270 330 - 330
Stock (Strategy)
5 6 7 8 9 10 11
5 0 30 60 90 120 150 180
6 30 0 30 60 90 120 150
7 60 30 0 30 60 90 120
8 90 60 30 0 30 60 90
9 120 90 60 30 0 30 60
10 150 120 90 60 30 0 30
11 180 150 120 90 60 30 0
Probability 0 0.15 0.2 0.4 0.15 0.1 0
Stock 5 0 X 0 + 30 X 0.15 + 60 X 0.2 + 90 X 0.4 + 120 X 0.15 + 150 X 0.1 + 180 X 0 85.5
Stock 6 30 X 0 + 0 X 0.15 + 30 X 0.2 + 60 X 0.4 + 90 X 0.15 + 120 X 0.1 + 150 X 0 55.5
Stock 7 60 X 0 + 30 X 0.15 + 0 X 0.2 + 30 X 0.4 + 60 X 0.15 + 90 X 0.1 + 120 X 0 34.5
Stock 8 90 X 0 + 60 X 0.15 + 30 X 0.2 + 0 X 0.4 + 30 X 0.15 + 60 X 0.1 + 90 X 0 25.5
Stock 9 120 X 0 + 90 X 0.15 + 60 X 0.2 + 30 X 0.4 + 0 X 0.15 + 30 X 0.1 + 60 X 0 40.5
Stock 10 150 X 0 + 120 X 0.15 + 90 X 0.2 + 60 X 0.4 + 30 X 0.15 + 0 X 0.1 + 30 X 0 64.5
Stock 11 180 X 0 + 150 X 0.15 + 120 X 0.2 + 90 X 0.4 + 60 X 0.15 + 30 X 0.1 + 0 X 0 94.5
So, The stock 8 have the minimal expected opportunity loss to to maximize the profit.
Q.no.14
Solution:
Probability 0.05 0.1 0.2 0.4 0.25 1.25 2.25
Given, ENTER

4000 X S
When stock > Demand
= 4000 X D-(S-D) X 3000
= 4000D-3000S+3000D
= 7000D-3000S
Payoff Table
State of Nature
Strategy
10 800 900 1000 1100
10 4000 X 10 4000 X 10 4000 X 10 4000 X 10 4000 X 10
800 7000 X 10-3000 X 800 4000 X 800 4000 X 800 4000 X 800 4000 X 800
900 7000 X 10-3000 X 900 7000 X 800-3000 X 900 4000 X 900 4000 X 900 4000 X 900
1000 7000 X 10-3000 X 1000 7000 X 800-3000 X 1000 7000 X 900-3000 X 1000 4000 X 1000 4000 X 1000
1100 7000 X 10-3000 X 1100 7000 X 800-3000 X 1100 7000 X 900-3000 X 1100 7000 X 1000-3000 X 1100 4000 X 1100
Payoff Table
State of Nature
Strategy
10 800 900 1000 1100
10 40000 40000 40000 40000 40000
800 -2330000 3200000 3200000 3200000 3200000
900 -2630000 2900000 3600000 3600000 3600000
1000 -2930000 2600000 3300000 4000000 4000000
1100 -3230000 2300000 3000000 3700000 4400000

Payoff Table
State of Nature
Strategy
10 800 900 1000 1100
10 40000 40000 40000 40000 40000
800 -2330000 3200000 3200000 3200000 3200000
900 -2630000 2900000 3600000 3600000 3600000
1000 -2930000 2600000 3300000 4000000 4000000
1100 -3230000 2300000 3000000 3700000 4400000
Probability 0.05 0.1 0.2 0.4 0.25

EMV
40000 X 0.05 + 40000 X
0.1+40000 X 0.2+40000
Strategy 10 X 0.4+40000 X 0.25 40000.0
-2330000 X 0.05 +
3200000 X 0.1+3200000
X 0.2+3200000 X
Strategy 11 0.4+3200000 X 0.25 2923500.0
-2630000 X 0.05 +
2900000 X 0.1+3600000
X 0.2+3600000 X
Strategy 12 0.4+3600000 X 0.25 3218500.0
-2930000 X 0.05 +
2600000 X 0.1+3300000
X 0.2+4000000 X
Strategy 13 0.4+4000000 X 0.25 3373500.0
-3230000 X 0.05 +
2300000 X 0.1+3000000
X 0.2+3700000 X
Strategy 14 0.4+4400000 X 0.25 3248500.0
40000X0.05+3200000X0.1+3600000*0.2+4000000*0.4+4400000X0.25
3742000
Q. No 15.
Mr. X quite often flies from Town A town B. He can use the airport bus which costs
Rs. 13 but if takes it, there is a 0.08 chance that he will miss the flight. A hotel limousine
Costs Rs. 27 with a 0.96 chance of living on time for the flight. For, Rs. 50, he can use a
taxi which will make 99 of 100 flights. If Mr. X catches the plane on time, he will conclude a
business transcation which will produce a profit of Rs. 1,000 otherwise he will lose it. Which mode
of transportation should Mr. X use? Answer on the basis of EMV criterion.
Solution:
Airport Bus
Cost = Rs. 13 On the basis of EMV criterion
Probability of Miss flight = Rs. 0.08 expected profit of using the Airport Bus, considering the probability of catching the flight.
Probability of timely arrival = 1 - 0.08 = Profit X Prob.
= 0.92 = 1000 X 0.92
Profit(PayOFF) = 1000 = 920
Adjusting cost to the profit
Net Expected profit = EMV-Cost
= 920-13
907
Hotel Limousine
Cost = Rs. 27 On the basis of EMV criterion
Probability of timely arrival = 0.96 Expected profit of using the Hotel Limousine considering the probability of catching the flight.
= Profit X Prob.
Profit(PayOFF) = 1000 = 1000 X 0.96
= 960

= 960-27
933
Taxi On the basis of EMV criterion

Cost = Rs.50 Expected profit of using the Taxi considering the probability of catching the flight.
Probability of timely arrival = '99/100 = Profit X Prob.
Profit(PayOFF) = 1000 0.99 = 1000 X 0.99
= 990
= 990-50
940
So, Transportation mode Taxi have the maximum payOFF after adjusting the cost,
For that reason, Mr x should go with Taxi.
Q.No. 16
Laliata Dhakal runs a shirt concession at Aakash Music Center. She buys commemorative T-shirts for Rs. 150
Each and sells them for Rs. 250. As people are leaving the music center after the concert, she reduces price
to Rs. 100 to sell any remaining shirts. Historically shirt seller follow the distribution as shown below.
Demand Probability
350 0.1
400 0.2
450 0.3
500 0.2
550 0.1
600 0.1
a) Construct the payOFF table.

b) Determine Lalita Dhakal's optimal ordering decesion using the expected value criterion.
Solution :
Given,

When stock > Demand
= 100 X D-(S-D) X 150
= 100D-150S+150D
250D-150S
Stock Demand (State of Nature)

(strategy) 350 400 450 500 550 551
350 100 X 350 100 X 350 100 X 350 100 X 350 100 X 350 100 X 350
400 250 X 350-150 X 400 100 X 400 100 X 400 100 X 400 100 X 400 100 X 400
450 250 X 350-150 X 450 250 X 400-150 X 450 100 X 450 100 X 450 100 X 450 100 X 450
500 250 X 350-150 X 500 250 X 400-150 X 500 250 X 450-150 X 500 100 X 500 100 X 500 100 X 500
550 250 X 350-150 X 550 250 X 400-150 X 550 250 X 450-150 X 550 250 X 500-150 X 550 100 X 550 100 X 550
600 250 X 350-150 X 600 250 X 400-150 X 600 250 X 450-150 X 600 250 X 500-150 X 600 250 X 550-150 X 600 100 X 600
PayOFF Table
Stock Demand (State of Nature)
(strategy) 350 400 450 500 550 551
350 35000 35000 35000 35000 35000 35000
400 27500 40000 40000 40000 40000 40000
450 20000 32500 45000 45000 45000 45000
500 12500 25000 37500 50000 50000 50000
550 5000 17500 30000 42500 55000 55000
600 -2500 10000 22500 35000 47500 60000
Prob. 0.1 0.2 0.3 0.2 0.1 0.1
Calculating All Stocks EMV values in the table

EMV
35000 X 0.1 + 35000 X 0.2 + 35000 X
0.3 + 35000 X 0.2 + 35000 X 0.1 +
Stock 350 35000 + 0.1 66500.1
27500 X 0.1 + 40000 X 0.2 + 40000 X

0.3 + 40000 X 0.2 + 40000 X 0.1 +
Stock 400 40000 + 0.1 74750.1
20000 X 0.1 + 32500 X 0.2 + 45000 X
0.3 + 45000 X 0.2 + 45000 X 0.1 +
Stock 450 45000 + 0.1 80500.1
12500 X 0.1 + 25000 X 0.2 + 37500 X
0.3 + 50000 X 0.2 + 50000 X 0.1 +
Stock 500 50000 + 0.1 82500.1
5000 X 0.1 + 17500 X 0.2 + 30000 X
0.3 + 42500 X 0.2 + 55000 X 0.1 +
Stock 550 55000 + 0.1 82000.1
-2500 X 0.1 + 10000 X 0.2 + 22500 X
0.3 + 35000 X 0.2 + 47500 X 0.1 +
Stock 600 60000 + 0.1 80250.1
MAX 82500.1
So, as per EMV criterion, Stock 500 would be the optimal units of stock lalita should maintain to get the maximum profit.
A stocklist of a particular commodity makes a profit of Rs. 30 on each sales made within the same week of
No of
items sold
within the 5 6 7 8 9 10 11
same
week
Frequency 0 9 12 24 9 6 0
Given,
Profit = Rs. 30
30 + 30
60
No of
items sold
within the 5 6 7 8 9 10 11
same
week
Frequency 0 9 12 24 9 6 0
Probability 0 0.15 0.2 0.4 0.15 0.1 0

= 30 X S
= 30S
When stock > demand

Conditional profit = MARGINAL PROFIT * Demand - (Stock- demand) X Marginal Loss
MP X D - (S-D) X ML
30D-(S-D) X 30
30D-30S+30D
60D-30S

(Strategy) 5 6 7 8 9 10 11
5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5
6 60 X 5 - 30X6 30 X 6 30 X 6 30 X 6 30 X 6 30 X 6 30 X 6
7 60 X 5 - 30X7 60 X 6 - 30X7 30 X 7 30 X 7 30 X 7 30 X 7 30 X 7
8 60 X 5 - 30X8 60 X 6 - 30X8 60 X 7 - 30X8 30 X 8 30 X 8 30 X 8 30 X 8
9 60 X 5 - 30X9 60 X 6 - 30X9 60 X 7 - 30X9 60 X 8 - 30X9 30 X 9 30 X 9 30 X 9
10 60 X 5 - 30X10 60 X 6 - 30X10 60 X 7 - 30X10 60 X 8 - 30X10 60 X 9 - 30X10 30 X 10 30 X 10
11 60 X 5 - 30X11 60 X 6 - 30X11 60 X 7 - 30X11 60 X 8 - 30X11 60 X 9 - 30X11 60 X 10 - 30X11 30 X 11

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330
Probability 0 0.15 0.2 0.4 0.15 0.1 0
Stock 5 150 X 0 + 150 X 0.15 + 150 X 0.2 + 150 X 0.4 + 150 X 0.15 + 150 X 0.1 + 150 X 0 150
Stock 6 120 X 0 + 180 X 0.15 + 180 X 0.2 + 180 X 0.4 + 180 X 0.15 + 180 X 0.1 + 180 X 0 180
Stock 7 90 X 0 + 150 X 0.15 + 210 X 0.2 + 210 X 0.4 + 210 X 0.15 + 210 X 0.1 + 210 X 0 201
Stock 8 60 X 0 + 120 X 0.15 + 180 X 0.2 + 240 X 0.4 + 240 X 0.15 + 240 X 0.1 + 240 X 0 210
Stock 9 30 X 0 + 90 X 0.15 + 150 X 0.2 + 210 X 0.4 + 270 X 0.15 + 270 X 0.1 + 270 X 0 195
Stock 10 0 X 0 + 60 X 0.15 + 120 X 0.2 + 180 X 0.4 + 240 X 0.15 + 300 X 0.1 + 300 X 0 171
Stock 11 -30 X 0 + 30 X 0.15 + 90 X 0.2 + 150 X 0.4 + 210 X 0.15 + 270 X 0.1 + 330 X 0 141

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330
Maximum
profit in each
demand 150 180 210 240 270 300 330
(Strategy) 5 6 7 8 9 10 11
5 150 - 150 180 - 150 210 - 150 240 - 150 270 - 150 300 - 150 330 - 150
6 150 - 120 180 - 180 210 - 180 240 - 180 270 - 180 300 - 180 330 - 180
7 150 - 90 180 - 150 210 - 210 240 - 210 270 - 210 300 - 210 330 - 210
8 150 - 60 180 - 120 210 - 180 240 - 240 270 - 240 300 - 240 330 - 240
9 150 - 30 180 - 90 210 - 150 240 - 210 270 - 270 300 - 270 330 - 270
10 150 - 0 180 - 60 210 - 120 240 - 180 270 - 240 300 - 300 330 - 300
11 150 - -30 180 - 30 210 - 90 240 - 150 270 - 210 300 - 270 330 - 330

(Strategy) 5 6 7 8 9 10 11
5 0 30 60 90 120 150 180
6 30 0 30 60 90 120 150
7 60 30 0 30 60 90 120
8 90 60 30 0 30 60 90
9 120 90 60 30 0 30 60
10 150 120 90 60 30 0 30
11 180 150 120 90 60 30 0
Probability 0 0.15 0.2 0.4 0.15 0.1 0
Stock 5 0 X 0 + 30 X 0.15 + 60 X 0.2 + 90 X 0.4 + 120 X 0.15 + 150 X 0.1 + 180 X 0 85.5
Stock 6 30 X 0 + 0 X 0.15 + 30 X 0.2 + 60 X 0.4 + 90 X 0.15 + 120 X 0.1 + 150 X 0 55.5
Stock 7 60 X 0 + 30 X 0.15 + 0 X 0.2 + 30 X 0.4 + 60 X 0.15 + 90 X 0.1 + 120 X 0 34.5
Stock 8 90 X 0 + 60 X 0.15 + 30 X 0.2 + 0 X 0.4 + 30 X 0.15 + 60 X 0.1 + 90 X 0 25.5
Stock 9 120 X 0 + 90 X 0.15 + 60 X 0.2 + 30 X 0.4 + 0 X 0.15 + 30 X 0.1 + 60 X 0 40.5
Stock 10 150 X 0 + 120 X 0.15 + 90 X 0.2 + 60 X 0.4 + 30 X 0.15 + 0 X 0.1 + 30 X 0 64.5
Stock 11 180 X 0 + 150 X 0.15 + 120 X 0.2 + 90 X 0.4 + 60 X 0.15 + 30 X 0.1 + 0 X 0 94.5
Just for a RECAP
A coca-cola distributer buys the bottles for Rs. 5 each and sales for Rs.7. All
are never less than 10 and not more than 12. Prepare payoff
n
Sol .
Practially analysing the question in the fundamental aspects
The payoff table will analyse and show the profit of each combination
Trying to go with conceptual understanding

Cost price per bottle = Rs. 5
Selling price per bottle = Rs. 7
Salvage value of bottle = Rs. 0
Distributer daily sales are between the range of 10-12(inlcusively)

Represents the uncontrollable variable
D1 D2 D3
Quantity 10 11 12
Level of stock (strategy)
S1 S2 S3
Quantity 10 11 12
Marginal Profit(MP) = SP-CP

= 7-5
A simple logic that SP-CP is the profit in the case of all goods are
Marginal Loss(ML) = CP
Since there is no any salvage value of the products in this context,
The question is calculate the profit in the all combination scenerios of demand
D1 S1
10 10
Conditional Profit(SP-CP) * Balanced Quantity
When Stock is less than or equal to demand
Interpretation : Being stock less means all acquired quanity is
actual loss, but there might
So in this case Conditional Profit = MP * Stock
When stock is greater than demand

Interpretation : When stock is greater than demand so, It means
In other words, it's obvious the excess
So in this case, Conditional Profit = MP * Demand

= 2D-(S-D)*5+0
= 2D-5S+5D
= 7D-5S
Let's Try to make the table as per own understanding
DEMAND
10 11 12
10 20 20 20
STOCK 11 15 22 22
12 10 17 24
All the bottles left over are worthless. His daily sales of cold drinks
payoff table and regret table.
combination of scenerios
12(inlcusively)
are sold.
context, The cost of product would be the entire marginal loss.

demand and stock we have
is completely utilized and there is no any possibility of

might be found the opportunity lost
Stock
means the purchased quantity is not completely utilized

excess stock will be the wastage
Demand - (S-D)*CP+ Salvage value of the wastage

D)*5+0
SECOND H$10 ROW reference Lock
THIRD $H10 Column reference Lock

Clearing the concept of the row lock and column with examples

Salary Before Tax
Salary Teacher Doctor Actor Pilot TAX
ST
Nepal 25,000 40,000 55,000 70,000 34% NONE 1 Row
nd
Pakistan 42,000 57,000 72,000 87,000 32% 2 Row
rd
India 59,000 74,000 89,000 104,000 28% 3 Row
th
China 76,000 91,000 106,000 121,000 24% 4 Row
Salary After Tax

Salary Teacher Doctor Actor Pilot
Nepal 8,500 #VALUE!
Pakistan
India
China
SECOND H$10 ROW reference Lock

Salary After Tax
Salary Teacher Doctor Actor Pilot
Nepal 8,500 #VALUE!
Pakistan 8,500
India 20,060
China 25,840
Salary Nepal Pakistan India China

Teacher 25,000 42,000 59,000 76,000
Doctor 40,000 57,000 74,000 91,000
Actor 55,000 72,000 89,000 106,000
Pilot 70,000 87,000 104,000 121,000
TAX 34% 32% 28% 24%
NONE
Salary Nepal Pakistan India China

Teacher 8,500 8,500
Doctor #VALUE!
Actor
Pilot
TAX
Extra info
The Management department of "Delta soap company" is concerned

a project to launch a shampoo on the basis of estimated payoff for
levels of sales
Estimated Level of sales (Units)

Types of shampoo
Egg shampoo 30 10
Clinic shampoo 40 15
Deluxe shampoo 55 20
What will be decision if, a) Maximin (b) Maximax and c) Regret criterion
Solution :
Let's identify the state of nature and strategy as per this question
So, Department can control which type of shampoo it's selling which
While the level of sales is beyond the control
Pessimistic So, Maximin would be the pessimistic criterion

Maximin = Maximizing the minimum While the degree of the pessimistic
possible outcomes.
MINE The most favoroable Types of Shampoo Payoff
outcome from the Egg shampoo 10
category of worst Clinic shampoo 5
scenarios Deluxe shampoo 3
chatGPT The Highest possible
benefit from the So the pessimestic(MAXIMIN) criterion would be the
category of worst EGG SHAMPOO
scenarios The choice of Egg Shampoo provides a level of security against uncertainties
variations in sales. Even in the worst-case scenario (lowest sales level),
Shampoo ensures a relatively higher payoff compared to the other
This can be especially important if the decision-maker is risk-averse
strategy that provides a safety net in unpredictable situations.
MAXIMAX Maximum from the highest beneficial scenerios

Types of Shampoo
Payoff
Egg shampoo 30
Clinic shampoo 40
Deluxe shampoo 55
So, Maximax would be the optimistic criterion

Deluxe shampoo 55
REGRET ANALYSIS
Estimated Level of sales (Units)
Types of shampoo
Egg shampoo 25 10
Clinic shampoo 15 5
Deluxe shampoo 0 0
For MINIMAX regret analysis
Types of Shampoo Regret

Egg shampoo 25
Clinic shampoo 15
Deluxe shampoo 7
So, the Deluxe shampoo would be the lowest regret selling decision
concerned with
for various In decision analysis, a payoff represents
Synonyms: Outcome, result, consequence,
(Units)
10
5
3
criterion is applied
question
which is the strategy to take proactive actions

control of department,considered as state of Nature
criterion or scenario
pessimistic is determined as the interpretation of the following process
10
uncertainties or
level), Egg
other alternatives.
averse and prefers a
scenerios
criterion or scenario
(Units)
0
5
7
decision with high degree of Risk.

represents the quantifiable result or consequence associated with a specific combination of decisions and states of nature.
consequence, reward, benefit, value.
nature. Payoff tables are often used to organize and present the potential outcomes or values for each decision alternative
alternative under different scenarios.
Yogurt Hut Ltd. Sells natural yogurt in a college community.
manager, filling out the orders for the next week's
how great the sales will be. Julie has the table below
profits given certain sales buying level combinations.
Actions
Weekly Sales
Buy 200 Buy 300 Buy 400
200 $ 50 $ 25 $ -
300 $ 50 $ 75 $ 50
400 $ 50 $ 75 $ 100
Using maximax decision criterion, what advice can

quantity of yogurt to buy for the next week.
So, Buying the yogurt is the action which is under

Weekly sales is beyond to control, which is the state
Here, Julie want to take the risk to not lose the opportunity
Actions Buy 200 Buy 300 Buy 400

PayOff $ 50 $ 75 $ 100
SO, Julie needs to Buy Quantity 400 which can benefit her $100
community. Julie stoneham, the
week's supply of yogurt. She is uncertain
below as a historical representation of
combinations.
can you give Julie about the
under Julie control and it is the strategy

state of nature
opportunity and uses maximax criterion
$100 while taking the risk.

Q.no.4
A decision matrix with cost data is given below:
Alternatives( STATE OF NATURE

Strategy) S1 S2 S3 S4
A1 1 3 8 5
A2 2 5 4 7
A3 4 6 6 3
A4 6 8 3 5
Find the best alternative using Minimax regret criterion
MAX of col. 6 8 8 7
The question is why maximum of the column is calculated why not maximum
it's because we always calculate State of nature(Demand) maximum value.
doing that is hide on the concept of the regret table. We made regret table
Did we lost if the maximum demand(state of nature) is being utilized for
demand respect to the each strategy(Stock).
In other words, the demand is same to the column in this case and payoff
Creating the regret Table
Alternatives( STATE OF NATURE
Strategy) S1 S2 S3 S4
A1 5 5 0 2
A2 4 3 4 0
A3 2 2 2 4
A4 0 0 5 2
So, now let's calculate the minimax regret criterion

Alternatives(Strategy)
PayOff
A1 5
A2 4
A3 4
A4 5
maximum of the row do not
value. The reason behind
table to show how much opportunity
for the selection of particular strategy(stock) which is calculated based upon the variation with the
payoff variation occurred due to the different scenerios

of stock(Strategy) we had.
Q.no. 14
A newsstand operator assigns the probabilities to the demand for the five magizine as follows:
Event: (Daily demand 10 11 12 13 14

Probability of the 0.1 0.15 0.2 0.25 0.3
An issue sales for Rs. 50 and cost Rs. 30. If the operator cannot return unsold copies, how many copies
should be ordered?
Solution:
Given,

When stock > Demand
= 20 X D-(S-D)*30
= 20D-30S+30D
50D-30S
Payoff Table
Copy(strategy)
10 11 12 13 14
10 20 X 10 20 X 10 20 X 10 20 X 10 20 X 10
11 50 X 10-30 X 11 20 X 11 20 X 11 20 X 11 20 X 11
12 50 X 10-30 X 12 50 X 11-30 X 12 20 X 12 20 X 12 20 X 12
13 50 X 10-30 X 13 50 X 11-30 X 13 50 X 12-30 X 13 20 X 13 20 X 13
14 50 X 10-30 X 14 50 X 11-30 X 14 50 X 12-30 X 14 50 X 13-30 X 14 20 X 14
Payoff Table
Copy(strategy)
10 11 12 13 14
10 200 200 200 200 200
11 170 220 220 220 220
12 140 190 240 240 240
13 110 160 210 260 260
14 80 130 180 230 280

Payoff Table
Copy(strategy)
10 11 12 13 14
10 200 200 200 200 200
11 170 220 220 220 220
12 140 190 240 240 240
13 110 160 210 260 260
14 80 130 180 230 280
Probability 0.1 0.15 0.2 0.25 0.3
The EMV for Copy 10 represents the average expected financial outcome for that
Copy, considering the probabilities of different demand levels. It provides a single
numerical value that summarizes the financial expectation for investing in Copy 10.

EMV
200 X 0.1 + 200
X 0.15+200 X
0.2+200 X
Copy 10 0.25+200 X 0.3 200.0
170 X 0.1 + 220
X 0.15+220 X
0.2+220 X
Copy 11 0.25+220 X 0.3 215.0
140 X 0.1 + 190
X 0.15+240 X
0.2+240 X
Copy 12 0.25+240 X 0.3 222.5
110 X 0.1 + 160
X 0.15+210 X
0.2+260 X
Copy 13 0.25+260 X 0.3 220.0
80 X 0.1 + 130 X
0.15+180 X
0.2+230 X
Copy 14 0.25+280 X 0.3 205.0
So, Newstand operator should order 12 copies with the highest EMV 222.5
Expected profit with the perfect information
EPP i Payoff where the each Copy are equal to the demand as the name assigned Perfect information
200X0.1+220X0.15+240*0.2+260*0.25+280X0.3
250
QNO 20
Solution:
Probability 0.12 0.17 0.26 0.23 0.15 0.05 0.02
Given, ENTER

1445 X S
When stock > Demand
= 1445 X D-(S-D) X 7550
= 1445D-7550S+7550D
= 8995D-7550S
Payoff Table
State of Nature
Strategy
15 16 17 18 19 20 21
15 21675 21675 21675 21675 21675 21675 21675
16 14125 23120 23120 23120 23120 23120 23120
17 6575 15570 24565 24565 24565 24565 24565
18 -975 8020 17015 26010 26010 26010 26010
19 -8525 470 9465 18460 27455 27455 27455
20 -16075 -7080 1915 10910 19905 28900 28900
21 -23625 -14630 -5635 3360 12355 21350 30345

Payoff Table
State of Nature
Strategy
15 16 17 18 19 20 21
15 21675 21675 21675 21675 21675 21675 21675
16 14125 23120 23120 23120 23120 23120 23120
17 6575 15570 24565 24565 24565 24565 24565
18 -975 8020 17015 26010 26010 26010 26010
19 -8525 470 9465 18460 27455 27455 27455
20 -16075 -7080 1915 10910 19905 28900 28900
21 -23625 -14630 -5635 3360 12355 21350 30345
Probability 0.12 0.17 0.26 0.23 0.15 0.05 0.02

EMV
6575 X 0.12 + 15570
X 0.17+24565 X
0.26+24565 X
Strategy 10 0.23+24565 X 0.15 21675.0
-975 X 0.12 + 8020 X
0.17+17015 X
0.26+26010 X
Strategy 11 0.23+26010 X 0.15 22040.6
-8525 X 0.12 + 470 X
0.17+9465 X
0.26+18460 X
Strategy 12 0.23+27455 X 0.15 20877.1
-16075 X 0.12 + -
7080 X 0.17+1915 X
0.26+10910 X
Strategy 13 0.23+19905 X 0.15 17374.8
-23625 X 0.12 + -
14630 X 0.17+-5635
X 0.26+3360 X
Strategy 14 0.23+12355 X 0.15 11803.7

6575X0.12+8020X0.17+9465*0.26+10910*0.23+12355X0.15
8975.85
Q.no 17
A stocklist of a particular commodity makes a profit of Rs. 30 on each sales made within the same week of
No of
items sold
within the 5 6 7 8 9 10 11
same
week
Frequency 0 9 12 24 9 6 0
Given,
Profit = Rs. 30
30 + 30
60
No of
items sold
within the 5 6 7 8 9 10 11
same
week
Frequency 0 9 12 24 9 6 0
Probability 0 0.15 0.2 0.4 0.15 0.1 0

= 30 X S
= 30S
When stock > demand

MARGINAL PROFIT * Demand - (Stock- demand) X Marginal Loss
MP X D - (S-D) X ML
30D-(S-D) X 30
30D-30S+30D
60D-30S

(Strategy) 5 6 7 8 9 10 11
5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5 30 X 5
6 60 X 5 - 30X6
30 X 6 30 X 6 30 X 6 30 X 6 30 X 6 30 X 6
7 60 X 5 - 30X7
60 X 6 - 30X7 30 X 7 30 X 7 30 X 7 30 X 7 30 X 7
8 60 X 5 - 30X8
60 X 6 - 30X8 60 X 7 - 30X8 30 X 8 30 X 8 30 X 8 30 X 8
9 60 X 5 - 30X9
60 X 6 - 30X9 60 X 7 - 30X9 60 X 8 - 30X9 30 X 9 30 X 9 30 X 9
10 60 X 5 - 30X10
60 X 6 - 30X10 60 X 7 - 30X10 60 X 8 - 30X10 60 X 9 - 30X10 30 X 10 30 X 10
11 60 X 5 - 30X11
60 X 6 - 30X11 60 X 7 - 30X11 60 X 8 - 30X11 60 X 9 - 30X11 60 X 10 - 30X11 30 X 11

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330

(Strategy) 5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330
Probability 0 0.15 0.2 0.4 0.15 0.1 0
Stock 5 150 X 0 + 150 X 0.15 + 150 X 0.2 + 150 X 0.4 + 150 X 0.15 + 150 X 0.1 + 150 X 0 150
Stock 6 120 X 0 + 180 X 0.15 + 180 X 0.2 + 180 X 0.4 + 180 X 0.15 + 180 X 0.1 + 180 X 0 180
Stock 7 90 X 0 + 150 X 0.15 + 210 X 0.2 + 210 X 0.4 + 210 X 0.15 + 210 X 0.1 + 210 X 0 201
Stock 8 60 X 0 + 120 X 0.15 + 180 X 0.2 + 240 X 0.4 + 240 X 0.15 + 240 X 0.1 + 240 X 0 210
Stock 9 30 X 0 + 90 X 0.15 + 150 X 0.2 + 210 X 0.4 + 270 X 0.15 + 270 X 0.1 + 270 X 0 195
Stock 10 0 X 0 + 60 X 0.15 + 120 X 0.2 + 180 X 0.4 + 240 X 0.15 + 300 X 0.1 + 300 X 0 171
Stock 11 -30 X 0 + 30 X 0.15 + 90 X 0.2 + 150 X 0.4 + 210 X 0.15 + 270 X 0.1 + 330 X 0 141

Stock (Strategy)
5 6 7 8 9 10 11
5 150 150 150 150 150 150 150
6 120 180 180 180 180 180 180
7 90 150 210 210 210 210 210
8 60 120 180 240 240 240 240
9 30 90 150 210 270 270 270
10 0 60 120 180 240 300 300
11 -30 30 90 150 210 270 330
Maximum profit in
each demand 150 180 210 240 270 300 330

Stock (Strategy)
5 6 7 8 9 10 11
5 150 - 150 180 - 150 210 - 150 240 - 150 270 - 150 300 - 150 330 - 150
6 150 - 120 180 - 180 210 - 180 240 - 180 270 - 180 300 - 180 330 - 180
7 150 - 90 180 - 150 210 - 210 240 - 210 270 - 210 300 - 210 330 - 210
8 150 - 60 180 - 120 210 - 180 240 - 240 270 - 240 300 - 240 330 - 240
9 150 - 30 180 - 90 210 - 150 240 - 210 270 - 270 300 - 270 330 - 270
10 150 - 0 180 - 60 210 - 120 240 - 180 270 - 240 300 - 300 330 - 300
11 150 - -30 180 - 30 210 - 90 240 - 150 270 - 210 300 - 270 330 - 330

Stock (Strategy)
5 6 7 8 9 10 11
5 0 30 60 90 120 150 180
6 30 0 30 60 90 120 150
7 60 30 0 30 60 90 120
8 90 60 30 0 30 60 90
9 120 90 60 30 0 30 60
10 150 120 90 60 30 0 30
11 180 150 120 90 60 30 0
Probability 0 0.15 0.2 0.4 0.15 0.1 0
Stock 5 0 X 0 + 30 X 0.15 + 60 X 0.2 + 90 X 0.4 + 120 X 0.15 + 150 X 0.1 + 180 X 0 85.5
Stock 6 30 X 0 + 0 X 0.15 + 30 X 0.2 + 60 X 0.4 + 90 X 0.15 + 120 X 0.1 + 150 X 0 55.5
Stock 7 60 X 0 + 30 X 0.15 + 0 X 0.2 + 30 X 0.4 + 60 X 0.15 + 90 X 0.1 + 120 X 0 34.5
Stock 8 90 X 0 + 60 X 0.15 + 30 X 0.2 + 0 X 0.4 + 30 X 0.15 + 60 X 0.1 + 90 X 0 25.5
Stock 9 120 X 0 + 90 X 0.15 + 60 X 0.2 + 30 X 0.4 + 0 X 0.15 + 30 X 0.1 + 60 X 0 40.5
Stock 10 150 X 0 + 120 X 0.15 + 90 X 0.2 + 60 X 0.4 + 30 X 0.15 + 0 X 0.1 + 30 X 0 64.5
Stock 11 180 X 0 + 150 X 0.15 + 120 X 0.2 + 90 X 0.4 + 60 X 0.15 + 30 X 0.1 + 0 X 0 94.5
Q.no. 14
A newsstand operator assigns the probabilities to the demand for the five magizine as follows:
Event: (Daily demand 10 11 12

Probability of the 0.1 0.15 0.2
An issue sales for Rs. 50 and cost Rs. 30. If the operator cannot return unsold copies, how
should be ordered?
Solution:
Given,
Given,
Selling Price (SP) = Rs.
Marginal Profit = SP-CP
Marginal loss = CP
When Stock <= Demand

Conditional Profit =
When Stock > Demand
=
=
Payoff Table
Stock(stra Demand (State of Nature)
tegy) 10 11 12 13
10 X 10 X 10 X 10 X 10
11 50 X -30 X 11 X 11 X 11 X 11
12 50 X -30 X 12 50 X -30 X 12 X 12 X 12
13 50 X -30 X 13 50 X -30 X 13 50 X -30 X 13 X 13
14 50 X -30 X 14 50 X -30 X 14 50 X -30 X 14
50 X -30 X 14
Payoff Table
tegy) 10 11 12 13
10 0 0 0 0
11 -330 0 0 0
12 -360 -360 0 0
13 -390 -390 -390 0
14 -420 -420 -420 -420
Payoff Table
tegy) 10 11 12 13
10 0 0 0 0
11 -330 0 0 0
12 -360 -360 0 0
13 -390 -390 -390 0
14 -420 -420 -420 -420
Probability 0.1 0.15 0.2 0.25
The EMV for Stock 10 represents the average expected financial outcome for that
stock, considering the probabilities of different demand levels. It provides a single
numerical value that summarizes the financial expectation for investing in Stock 10.

EMV
Stock 10 0 X -360 + 0 X -360+0 X 0+0 X 0+0 X 0 0.0
Stock 11 -330 X -360 + 0 X -360+0 X 0+0 X 0+0 X 0 118800.0
Stock 12 -360 X -360 + -360 X -360+0 X 0+0 X 0+0 X 0 259200.0
Stock 13 -390 X -360 + -390 X -360+-390 X 0+0 X 0+0 X 0 280800.0
-420 X -360 + -420 X -360+-420 X 0+-420 X 0+0 X
Stock 14 0 302400.0
follows:
13 14
0.25 0.3
how many copies
30
50
20
Rs. 30
Demand
MP X Stock
20 X S
Demand
MP X Demand -(S-D) X CP
20 X D-(S-D)*30
20D-30S+30D
50D-30S
14
X 10
X 11
X 12
X 13
X 14
14
0
0
0
0
0
14
0
0
0
0
0
0.3
Interpretation
So the probability estimation can be based upon historical data such as days accordingly
highest sales would be given the more weight and following the subsquent process.
While there is no deviation to the stock 10 with respect to the all demands which does not
not matter.

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Q.No.

Pay offs(in '000' Rs.)

A1 Introduce a new product with new packaging at a much higher price.

Strategy(Action) Act A1 Act A2 Act A3

So Action 3rd(A3) would be the maximin ( Pessimistic criterion)

Strategy(Action) Act A1 Act A2 Act A3

Pay offs(in '000' Rs.)

Strategy(Action) Act A1 Act A2 Act A3

So, minimax regret criterion is A1

Event(D Act(Purchase) or Decision alternatives

No. of copies sold

Cost per copy of magazine

The EMV for Stock

employment promotion programme, it is proposed to allow sale of newspapers on

magazine is Rs. 30 and sale price per copy is Rs. 50

Stock 10 represents the average expected financial outcome for that

Calculating All stocks EMV values in the table

200 X 0.1 + 200 X 0.15+200 X 0.2+200 X 0.25+200 X 0.3

When Stock <= Demand

Transportation cost from Pokhara to Birgunj Transportation cost from

from Pokhara to Biratnagar

When stock <= Demand

b) Calculate the expected monetary value (EMV) for each strategy.

EMV = ∑(Payoff x Prob.)

Calculating All Copys EMV values in the table

So, Strategy 11 should be Selected with the highest EMV 22040.6

Expected Payoff with the perfect information

Probability 0 0.15 0.2 0.4 0.15 0.1 0

When stock <= demand

When stock > demand

Stock Demand (State of nature)

Stock Demand (State of nature)

Stock Demand (State of nature)

Calculating All stocks EMV values in the table

Demand (State of nature)

Demand (State of nature)

When stock <= Demand

b) Calculate the expected monetary value (EMV) for each strategy.

EMV = ∑(Payoff x Prob.)

Calculating All Copys EMV values in the table

So, Strategy 13 should be Selected with the highest EMV 3373500.0

Expected Payoff with the perfect information

Adjusting cost to the profit

Taxi On the basis of EMV criterion

a) Construct the payOFF table.

When stock <= Demand

Stock Demand (State of Nature)

Calculating All Stocks EMV values in the table

27500 X 0.1 + 40000 X 0.2 + 40000 X

Probability 0 0.15 0.2 0.4 0.15 0.1 0

When stock <= demand

When stock > demand

Stock Demand (State of nature)

Stock Demand (State of nature)

Stock Demand (State of nature)

Calculating All stocks EMV values in the table

Stock Demand (State of nature)

Stock Demand (State of nature)

Trying to go with conceptual understanding

Distributer daily sales are between the range of 10-12(inlcusively)

Marginal Profit(MP) = SP-CP

When stock is greater than demand

So in this case, Conditional Profit = MP * Demand

context, The cost of product would be the entire marginal loss.