A company purchases its merchandise for $10 and sells for each item for $20. The pay-off table for the problem is given below.
Demand for Item
Alternative Low Medium High
Do nothing 0 0 0
Order Low 30,000 30,000 30,000
Order Medium 10,000 50,000 40,000
Order High -10,000 40,000 80,000
Probability 0.3 0.3 0.4
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