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    Quantitative analysis and demand

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    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. The pay-off 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 on demand based on each of the following criteria? Show work in making the decision for each criterion.

    a) EMV approach
    b) EOL approach

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    Solution Preview

    Please refer attached file for better clarity of tables.

    a) EMV Approach

    Low Medium High EMV
    25 Doz 60 Doz 130 Doz
    Do nothing 0 0 0 0
    Order 25 Doz 300000 300000 300000 300000
    Order 60 Doz 100000 600000 600000 450000
    Order 130 Doz -100000 400000 900000 400000
    Probability 0.3 0.4 0.3

    EMV for "Do nothing"=0.3*0+0.4*0+0.3*0=0
    EMV for "Order 25 Doz."=0.3*300000+0.4*300000+0.3*300000=$300,000
    EMV for "Order 60 Doz."=0.3*100000+0.4*600000+0.3*600000=$450,000
    EMV for "Order 130 ...

    Solution Summary

    Solution describes the steps to determine the best decision based on each of the given criteria.

    $2.19

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