ands of dollars) are shown. ative High Demand $1 60 80 100 E) = 0.70 V) = 0.30 begin State of Nature Medium Demand $2 60 80 70 r probabilities for the three states of nature are 0.3, 0.3, and 0.4, respectiv e recommended order quantity? P(S₁E) = 0.34 P(s₂|E) = 0.32 P(S3E) = 0.34 pro Low Deman $3 50 30 10 preseason sales meeting, the vice president of sales provides a pers egarding potential demand for this product. Because of the vice preside m and optimistic nature, the predictions of market conditions have alw er "excellent" (E) or "very good" (V). Probabilities are as follows: P(s₁|V) = 0.20 P(S₂|V) = 0.26 P(S3|V) = 0.54 he optimal decision strategy? ficiency of sample information and discuss whether the firm should cons ng expert who could provide independent forecasts of market condition ct.
ands of dollars) are shown. ative High Demand $1 60 80 100 E) = 0.70 V) = 0.30 begin State of Nature Medium Demand $2 60 80 70 r probabilities for the three states of nature are 0.3, 0.3, and 0.4, respectiv e recommended order quantity? P(S₁E) = 0.34 P(s₂|E) = 0.32 P(S3E) = 0.34 pro Low Deman $3 50 30 10 preseason sales meeting, the vice president of sales provides a pers egarding potential demand for this product. Because of the vice preside m and optimistic nature, the predictions of market conditions have alw er "excellent" (E) or "very good" (V). Probabilities are as follows: P(s₁|V) = 0.20 P(S₂|V) = 0.26 P(S3|V) = 0.54 he optimal decision strategy? ficiency of sample information and discuss whether the firm should cons ng expert who could provide independent forecasts of market condition ct.
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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Question
Transcribed Image Text:22. Lawson's Department Store faces a buying decision for a seasonal product for which
demand can be high, medium, or low. The purchaser for Lawson's can order one, two, or
three lots of the product before the season begins but cannot reorder later. Profit projec-
tions (in thousands of dollars) are shown.
Decision Alternative
Order 1 lot, d₁
Order 2 lots, d₂
Order 3 lots, d
High Demand
$1
P(E)= 0.70
P(V) = 0.30
60
80
100
State of Nature
Medium Demand
$2
60
80
70
a. If the prior probabilities for the three states of nature are 0.3, 0.3, and 0.4, respectively,
what is the recommended order quantity?
b. At each preseason sales meeting, the vice president of sales provides a personal
opinion regarding potential demand for this product. Because of the vice president's
enthusiasm and optimistic nature, the predictions of market conditions have always
been either "excellent" (E) or "very good" (V). Probabilities are as follows:
P(S₁E) = 0.34
P(S₂E) = 0.32
P(S3E) = 0.34
Low Demand
$3
50
30
10
P(s₁|V) = 0.20
P(S₂|V) = 0.26
P(s3|V) = 0.54
What is the optimal decision strategy?
c. Use the efficiency of sample information and discuss whether the firm should consider
a consulting expert who could provide independent forecasts of market conditions for
the product.
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