Birka Styles & Co is introducing a new line of beachwear for their retail stores. The manager needs to decide how many lots of the new beachwear to order for their stores. The marketing came up with a payoff table (see below) considering information about the price, projected sales level, and cost of inventory and ordering.    DEMAND Order size Low Medium High 1 lot 12,000 15,000 15,000 2 lots 9,000 25,000 35,000 3 lots 6,000 35,000 60,000 ​If the owner of Birka Styles & Co is a pessimist, how many lots should the manager order?

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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Birka Styles & Co is introducing a new line of beachwear for their retail stores. The manager needs to decide how many lots of the new beachwear to order for their stores. The marketing came up with a payoff table (see below) considering information about the price, projected sales level, and cost of inventory and ordering. 

  DEMAND
Order size Low Medium High
1 lot 12,000 15,000 15,000
2 lots 9,000 25,000 35,000
3 lots 6,000 35,000 60,000

​If the owner of Birka Styles & Co is a pessimist, how many lots should the manager order?

Expert Solution
Step 1

To solve this issue, we can take a minimax approach. The regret value needs to be calculated for each of the demand scenarios of low, medium and high.

Regret is calculated for a scenario as the difference between the maximum demands for the lot and the payoff for the particular scenario.

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