3 (i) Construct a payoff table, indicating the events and alternative courses of action. (ii) Construct a decision tree. (iii) Compute the expected monetary value (EMV) for purchasing 6,000, 8,000, 10,000, and 12,000 loaves.
QUESTION ONE
(c)
A supermarket chain purchases large quantities of white bread for sale during a week. The stores purchase the bread for 9.75 per loaf and sell it for 13.10 per loaf. Any loaves not sold by the end of the week can be sold to a local thrift shop for 5.40. Based on past demand, the probability of various levels of demand is as follows:
Demand(loaves) Probability 6,000 0.10 8,000 0.50 10,000 0.30 12,000 0.10
3
(i)
Construct a payoff table, indicating the events and alternative courses of action.
(ii)
Construct a decision tree. (iii) Compute the expected monetary value (EMV) for purchasing 6,000, 8,000, 10,000, and 12,000 loaves.
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