Case 1: Decision Analysis
Flifla sells tomatoes every day in Suk al Marqazi, the downtown fruit and vegetable market. He finds that he can order tomatoes in crates of 25 kg and he is capable to stock a maximum of four crates or 100 kg of tomatoes. His experience taught him that the daily demand ranges from 0 to100 kg of tomatoes. Flifla sells tomatoes at 1 dirham/kg. His cost is Dhs 0.70 per kg. Thus, his profit is Dhs 0.30 per kg of tomatoes sold. For any unsold tomatoes, Flifla can sell them for Dhs 0.50 to a recycling firm that generates tomato paste. Flifla’s objective is to find out the quantity of tomatoes to buy each day to maximize his profits. Answer the given questions.
1) Construct a conditional payoff table.
2) What is the best decision according to the given criteria?
- Optimistic criterion.
- Pessimistic criterion.
- Equally likely.
3) Construct an opportunity loss table.
4) What is the Minimax regret?
5) Assume the given probability distribution:
6) What is the best decision according to the Expected Monetary Value?
7) What is the best decision according to the Expected Opportunity Loss?
8) What is the Expected Value of Perfect Information?