A computer reseller needs to decide how many laptops to order next month. The lowest end laptop costs $220 and the retailer can sell these for $300. However, the laptop manufacturer already announced that they are coming out with a new model in a couple of months. Any laptops that will not be sold by the end of next month will have to be heavily discounted at half-price. The reseller also needs to consider that every time he fails to fulfill a laptop order, he stands to lose $25 for every unit. Based on the past months’ sales, the reseller estimates the demand probabilities for sales (S) as follows: P(0 units) = 0.3; P(1 units) = 0.4; P(2 units) = 0.2; P(3 units) =0.1. The reseller thinks it’s a good idea to conduct a survey on whether or not his customers are going to buy laptops and how many. The survey results will either be Yes (Y), No (N) or Don’t Know (DK). The probability estimates of the results based on the demand for number of units are: P(Y|S = 0 units) = 0.1 P(Y|S = 1 units) = 0.2 P(Y|S = 2 units) = 0.3 P(Y|S = 3 units) = 0.9 P(N|S = 0 units) = 0.8 P(N|S = 1 units) = 0.3 P(N|S = 2 units) = 0.1 P(N|S = 3 units) = 0.1 What you need to do: 1) Build the reseller’s payoff matrix (table). 2) Determine the reseller’s best decision without conducting the survey 3) Compute for the resellers’ EVPI. 4) If the reseller conducts the survey, what would be the best strategy? 5) Determine the maximum amount the reseller should pay to conduct the survey. Explain your answer.
A computer reseller needs to decide how many laptops to order next month. The lowest end laptop costs $220 and the retailer can sell these for $300. However, the laptop manufacturer already announced that they are coming out with a new model in a couple of months. Any laptops that will not be sold by the end of next month will have to be heavily discounted at half-price. The reseller also needs to consider that every time he fails to fulfill a laptop order, he stands to lose $25 for every unit. Based on the past months’ sales, the reseller estimates the demand probabilities for sales (S) as follows: P(0 units) = 0.3; P(1 units) = 0.4; P(2 units) = 0.2; P(3 units) =0.1.
The reseller thinks it’s a good idea to conduct a survey on whether or not his customers are going to buy laptops and how many. The survey results will either be Yes (Y), No (N) or Don’t Know (DK). The probability estimates of the results based on the demand for number of units are:
P(Y|S = 0 units) = 0.1
P(Y|S = 1 units) = 0.2
P(Y|S = 2 units) = 0.3
P(Y|S = 3 units) = 0.9
P(N|S = 0 units) = 0.8
P(N|S = 1 units) = 0.3
P(N|S = 2 units) = 0.1
P(N|S = 3 units) = 0.1
What you need to do:
1) Build the reseller’s payoff matrix (table).
2) Determine the reseller’s best decision without conducting the survey
3) Compute for the resellers’ EVPI.
4) If the reseller conducts the survey, what would be the best strategy?
5) Determine the maximum amount the reseller should pay to conduct the survey. Explain your answer.
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