Must Wordprocess formulas using Equation Editor and diagrams using excel Drawing Tool. All questions must be answered completely in order to release payment.
Problem 1
Adele Weiss manages the campus flower shop. Flowers must be ordered three days in advance from her supplier in Mexico. Advance sales are so small that Weiss has no way to estimate the demand for the red roses. She buys roses for $15 per dozen and sells them for $40 per dozen. Payoff table for the problem is given below.

Demand for Red Roses 

Alternative 
Low (25 dozen) 
Medium (60 dozen) 
High (130 dozen) 
Do nothing 
0 
0 
0 
Order 25 dozen 
300,000 
300,000 
300,000 
Order 60 dozen 
100,000 
600,000 
600,000 
Order 130 dozen 
100,000 
400,000 
900,000 
Probability 
0.3 
0.4 
0.3 
What is the decision based on each of the following criteria? Show work in making the decision for each criterion.
a) EMV approach
b) EOL approach
Use the tables given below.
a) EMV Approach

Demand for Red Roses 


Alternative 
Low (25 dozen) 
Medium (60 dozen) 
High (130 dozen) 
EMV 
Do nothing 




Order 25 dozen 




Order 60 dozen 




Order 130 dozen 




Probability 
0.3 
0.4 
0.3 

b) EOL Approach

Demand for Red Roses 


Alternative 
Low (25 dozen) 
Medium (60 dozen) 
High (130 dozen) 
EOL 
Do nothing 




Order 25 dozen 




Order 60 dozen 




Order 130 dozen 




Probability 
0.3 
0.4 
0.3 

Problem 2
BuildRite construction has received favorable publicity from guest appearances on a public TV home improvement program. Public TV programming decisions seem to be unpredictable, so Build –Rite cannot estimate the probability of continued benefits from it relationship with the show. Demand for home improvements next year may be either low or high. But BuildRite must decide now whether to hire more employees, do nothing, or develop subcontracts with other home improvement contractors. BuildRite has developed the following payoff table.
Payoffs 
Demand For Home Improvements 

Alternative 
Low 
Moderate 
High 
Hire 
($250,000) 
$100,000 
$625,000 
Subcontract 
$100,000 
$150,000 
$415,000 
Do nothing 
$50,000 
$80,000 
$300,000 
What is the decision based on each of the following criteria? Show work in making the decision for each criterion:
a) Maximax
b) Maximin
c) Criterion of realism with coefficient of realism = 0.7
d) Equally likely
e) Minimax regret
Use the tables given below.
a) Optimistic or Maximax Criterion
Payoffs 
Demand For Home Improvements 


Alternative 
Low 
Moderate 
High 

Hire 




Subcontract 




Do nothing 




b) Pessimistic or Maximin Criterion
Payoffs 
Demand For Home Improvements 


Alternative 
Low 
Moderate 
High 

Hire 




Subcontract 




Do nothing 




c) Criterion of realism with coefficient of realism = 0.7
Payoffs 
Demand For Home Improvements 


Alternative 
Low 
Moderate 
High 

Hire 




Subcontract 




Do nothing 




d) Equally likely or Principle of Insufficient Reason Criterion
Payoffs 
Demand For Home Improvements 


Alternative 
Low 
Moderate 
High 



Hire 






Subcontract 






Do nothing 






e) Minimax Regret Approach
Regrets 
Demand For Home Improvements 


Alternative 
Low 
Moderate 
High 

Hire 




Subcontract 




Do nothing 




Problem 3
Planwell Corporation
Planwell Corporation is considering whether to build a large plant or a small plant for new product, which has an estimated life of 7 years. A small plant requires an investment of $3.4 million and a large plant of $4 million. The following estimates are available for annual income.
Plant Size 
Demand 
Annual Income 
Large 
High 
$900,000 

Low 
$300,000 
Small 
High 
$600,000 

Low 
$500,000 
The probability of high demand in first year is 0.75. If the demand is high in the first year, the probabilities of high and low demands in subsequent years are 0.7 and 0.3 respectively. The probability of low demand in the first year is 0.25. If the demand is low in the first year, the probabilities of high and low demands in subsequent years are 0.2 and 0.8 respectively.
Evaluate the decision alternatives open to the company using decision trees. Which alternative should be followed by the Planwell company and what return can be expected?
Use this space for the Decision Tree
Decision Tree for Planwell Corporation
Subject  Mathematics 
Due By (Pacific Time)  08/18/2013 03:00 pm 
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