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Quantitative analysis and demand

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

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.

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