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# Payoff Table

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1. The manager of a toy store has to decide how many toys to stock for the Christmas season. Each toy cost the store \$5 and is sold for \$10. The manager is certain that total sales of a particular toy will always be either 1,000 units, 2,000 units, 3000, 4000, or 6,000 units. The manager has to decide whether to order 2,000, 4,000 or 6,000 toys. (Toys can only be ordered in lots (boxes) of 2,000 toys.)

a. Form a payoff table for the above problem assuming that unsold toys are given to a charitable organization. (You must clearly identify the decision variables and states of nature.)
b. Form a regret table for this problem
c. Form a payoff table for the above assuming that unsold toys are sold at a later time (guaranteed) for \$2.00 each.

(Questions also included in attachment)

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#### Solution Preview

Please refer to the attachment.

a. Form a payoff table for the above problem assuming that unsold toys are given to a charitable organization. (You must clearly identify the decision variables and states of nature.)

Because the probability of each possible sale is not given, we have to assume that they are uniformly distributed. Each sale's probability is assumed to be 1/5=0.2
(but if you have the probability data, just insert into the probability row and follow the steps.) another issue is that we don't use the simple ...

#### Solution Summary

1. The manager of a toy store has to decide how many toys to stock for the Christmas season. Each toy cost the store \$5 and is sold for \$10. The manager is certain that total sales of a particular toy will always be either 1,000 units, 2,000 units, 3000, 4000, or 6,000 units. The manager has to decide whether to order 2,000, 4,000 or 6,000 toys. (Toys can only be ordered in lots (boxes) of 2,000 toys.)

a. Form a payoff table for the above problem assuming that unsold toys are given to a charitable organization. (You must clearly identify the decision variables and states of nature.)
b. Form a regret table for this problem
c. Form a payoff table for the above assuming that unsold toys are sold at a later time (guaranteed) for \$2.00 each.

\$2.49