Problem
Review the following scenario, and answer the questions:
A market buys T-bone steaks from a university's animal science department. The purchase price is $2.50 per pound, and the market sells the stick for $4.00 per pound. Steak left over at the end of the week is sold to a local cannery for $0.50 per pound. According to sales records over the past 100 weeks, demand has been as follows:
|
Weekly demand
|
Number of weeks
|
|
10
|
10
|
|
11
|
20
|
|
12
|
20
|
|
13
|
30
|
|
14
|
10
|
|
15
|
10
|
|
TOTAL
|
100
|
Construct a payoff table for the various demand and stocking quantities. Determine the best amount to stock using each of the following criteria:
i. Laplace
ii. maximin
iii. maximax
iv. Hurwicz (a = 0.2)
v. regret (minimax)
If the market can obtain perfect information concerning the following week's demand for T-bone steak, what will the expected profit be? Determine the optimal stock quantity.