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Week 14
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The maximax strategy is the one that gives the highest payoff
(11.000). Thus, high inventory is our maximax decision.
For the minimax strategy we need 1) to construct the opportunity
loss table, ) determine the maximum opportunity loss for each
action and ) select the minimum value of these opportunity losses.
£  

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1


Minimum value of
ow 0 000 7000 opportunity losses

Medium 000 0 4000

Thus, our minimax decision
High 8000 4000 0 is medium inventory
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The manager has two available actions on pricing the contract: ow
and High. His final decision will be the action with the highest payoff.
The payoffs can be calculated as follows:
ow price payoff = (0.4*10.000)+(0.4*15.000)+(0. * 0.000) =14.000
High price payoff = (0.4*.000)+(0.4*10.000)+(0. *0.000) =11. 00

High .000 10.000 0.000

Hence, the manager should choose the low price for the contract
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The marketing dept has two available actions regarding the investment
level: ow, Medium and High. Once again,the final decision will be the
action with the highest payoff:
ow inv payoff = (0. *00.000)+(0.5*400.000)+(0.*500.000)=410.000
Medium inv payoff = (0. *(-100.000))+(0.5*900.000)+(0.*1.000.000)=70.000
High inv payoff = (0. * (-400.000))+(0.5*00.000)+(0.*.000.000)=970.000

ow 00.000 400.000 500.000

Medium -100.000 900.000 1.000.000
High -400.000 00.000 .000.000

Hence, the marketing dept must choose the high level of investment
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Ñayoff Table    

Weak Demand Average Demand
trong Demand
 
1500 (0. ) 000 (0.4) 500 (0.4)

E(1500) = (0.2*750) + (0.4*750) + (0.4*750)=750

E(2000) = (0.2*600) + (0.4*1000) + (0.4*1000)=920
E(2500)=(0.2*450) + (0.4*850) +(0.4*1250)=930
Perfect information =(0.2*750) + (0.4*1000) + (0.4*1250)= 1050
EVPI =1050-930 =120, So \$120 is the maximum amount the manager should pay
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tate of
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Components

Good 0.5 * 0.7 = 0.5 0. * 0.7 = 0. 1 0. * 0.7 = 0.14 0.7

Faulty 0.1 * 0. = 0.0 0. * 0. = 0.09 0.6 * 0. = 0.18 0.

P(good/ +ve) = 0.35 / 0.38 = 0.92 P(faulty/ +ve) = 0.03/0.38 = 0.08

P(good/ neutral) = 0.21 / 0.3 = 0.7 P(faulty/ neutral) = 0.09/0.3 = 0.3
P(good/ -ve) = 0.14 / 0.32 = 0.44 P(faulty/ -ve) = 0.18/0.32 = 0.56
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