The decision (payoff) table for homework problem 8-22 (Waldo Books) is shown bel
ID: 3243651 • Letter: T
Question
The decision (payoff) table for homework problem 8-22 (Waldo Books) is shown below. Each entry in the table shows the payoff (profit), given the number of books ordered (the alternatives) and the number of books sold (outcomes).
Alternatives Outcomes (Demand)
(# ordered) 50 100 150 200
50 $500 $500 $500 $500
100 -$300 $1,000 $1,000 $1,000
150 -$1,100 $200 $1,500 $1,500
200 -$1,900 -$600 $700 $2,000
After researching the market, Waldo Books has concluded that the probabilities of selling 50, 100, 150, and 200 books next month are 0.05, 0.20, 0.45, and 0.30, respectively. Given this information, what is the maximum Expected Monetary Value (EMV)?
-600
200
500
740
870
980
1110
1500
Based on the maximum EMV from question 1, how many books should be ordered?
a.-600
b.200
c.500
d.740
e.870
f.980
g.1110
h.1500
Based on the maximum EMV from question 1, how many books should be ordered?
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EMV(50) = 0.05 * 500 + 0.2 * 500 + 0.45 * 500 + 0.3 * 500 = 500
EMV(100) = 0.05 * -300 + 0.2 * 1000 + 0.45 * 1000 + 0.3 * 1000 = 935
EMV(150) = 0.05 * -1100 + 0.2 * 200 + 0.45 * 1500 + 0.3 * 1500 = 1110
EMV(200) = 0.05 * -1900 + 0.2 * -600 + 0.45 * 700 + 0.3 * 2000 = 700
Expected monetary value = 1110
Answer is option g)
Books should be ordered are as :
50 * 0.05 = 2.5
100 * 0.20 = 20
150 * 0.45 = 67.5
200 * 0.30 = 60
150 books should be ordered.
EMV =
Ordered Outcomes 50 500 500 500 500 100 -300 1000 1000 1000 150 -1100 200 1500 1500 200 -1900 -600 700 2000 Probability 0.05 0.2 0.45 0.3Related Questions
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