What the student should do. A group of young ISE students would like to have a party in order to fund their spring break activities; however, they are not sure where to hold their party.
They can rent three possible locations. The possible locations, fixed rental price, maximum capacity at each location, and the variable cost per person for the food/drink menu is summarized in the table below.
The student plan to order enough food/drinks to cover the maximum capacity at the rental location They are selling tickets to this event for S20. However, the number of people who will buy a $20 ticket is not known with certainty. The number sold can be low (80 tickets), medium (100 tickets), or high (120 tickets).
There is a 25% chance that 80 tickets can be sold; 35% chance that 100 tickets can be sold, and 40% chance that 120 tickets can be sold. Assume every person that buys a ticket will attend the event. If the event is oversold (that is the number of people who show up is more than the capacity at the venue), then they give a refund to the people who cannot get in the party.
The students are trying to figure out what they should do in order to earn the highest possible profit from their party.
Develop a decision analysis formulation for this problem and determine the best course of action.
Define the decision alternatives
Define the states
Construct the payoff matrix table
Which decision should the students take under the expected value criterion?
Which decision should the students take when using the Minimax Regret criterion?
Assuming that the students are optimistic (that they make the decisions under the maxima decision criterion), what decision would you recommend?
Assuming that the students are pessimistic(Maximin), which decision would you recommend?