The manager of the greeting card section of Mazey’s department store is considering her order for a particular line of Christmas cards. The cost for each box of cards is $3; each box will be sold for $5 during the Christmas season. After Christmas, the cards will be sold for $2 a box. The card section manager believes that all leftover cards can be sold at that price. The estimated demand during the Christmas season for the line of Christmas cards, with associated probabilities, is shown as follows. Demand (boxes) Probability 25 26 27 28 29 30 .10 .15 .30 .20 .15 .10 a. Develop the payoff table for this decision situation. b. Compute the expected value for each alternative, and identify the best decision. c. Compute the expected value of perfect information.
The manager of the greeting card section of Mazey’s department store is considering her order for a particular line of Christmas cards. The cost for each box of cards is $3; each box will be sold for $5 during the Christmas season. After Christmas, the cards will be sold for $2 a box. The card section manager believes that all leftover cards can be sold at that price. The estimated demand during the Christmas season for the line of Christmas cards, with associated probabilities, is shown as follows. Demand (boxes) Probability 25 26 27 28 29 30 .10 .15 .30 .20 .15 .10 a. Develop the payoff table for this decision situation. b. Compute the expected value for each alternative, and identify the best decision. c. Compute the expected value of perfect information.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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The manager of the greeting card section of Mazey’s department store is considering her order for a particular line of Christmas cards. The cost for each box of cards is $3; each box will be sold for $5 during the Christmas season. After Christmas, the cards will be sold for $2 a box. The card section manager believes that all leftover cards can be sold at that price. The estimated demand during the Christmas season for the line of Christmas cards, with associated probabilities, is shown as follows.
|
Demand (boxes) |
Probability |
|
25 26 27 28 29 30 |
.10 .15 .30 .20 .15 .10 |
a. Develop the payoff table for this decision situation.
b. Compute the expected value for each alternative, and identify the best decision.
c. Compute the expected value of perfect information.
Transcribed Image Text:**Problem Context:**
The manager of the greeting card section at Mazey's department store is planning an order for a specific line of Christmas cards. Each box costs $3, and during the Christmas season, they will be sold for $5 a box. Post-Christmas, any leftover boxes will be sold at $2 each. Estimated demand for these Christmas cards, along with their probabilities, is as follows:
**Demand and Probability Table:**
- **Demand (boxes):**
- 25
- 26
- 27
- 28
- 29
- 30
- **Probability:**
- 25 boxes - 0.10
- 26 boxes - 0.15
- 27 boxes - 0.30
- 28 boxes - 0.20
- 29 boxes - 0.15
- 30 boxes - 0.10
**Tasks:**
a. Develop the payoff table for this decision situation.
b. Compute the expected value for each alternative and identify the best decision.
c. Compute the expected value of perfect information.
Transcribed Image Text:**Problem 28: Greeting Card Demand Analysis**
The manager of the greeting card section at Mazey's department store is evaluating her order strategy for a specific line of Christmas cards. Here's the situation:
- **Cost per box**: $3
- **Selling price during Christmas season**: $5 per box
- **Selling price after Christmas**: $2 per box
- **Assumption**: All leftover cards can be sold for $2 each after the Christmas season.
**Estimated Demand and Probabilities:**
| Demand (boxes) | Probability |
|----------------|-------------|
| 25 | 0.10 |
| 26 | 0.15 |
| 27 | 0.30 |
| 28 | 0.20 |
| 29 | 0.15 |
| 30 | 0.10 |
### Tasks:
a. Develop a payoff table for this decision situation.
b. Compute the expected value for each alternative and identify the best decision.
c. Compute the expected value of perfect information.
This analysis will help the manager optimize her ordering strategy to maximize profits.
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