Question:
AAA auto supply store sells snow tires which are ordered every Friday to meet next week''s demand. the sales price for the most popular size is $50 per tire and its cost for AAA is $35. If too many tires are ordered AAA incurs and inventory carrying cos of $2 per tire.
If AAA is out of stock, it forgoes the profits from missed sales. AAA has the option to order 100, 150, or 200 tires to meet next week''s demand which can be either 100, 150, or 200 tires.
Based on its historical demand distribution, assume that AAA Inc. has determined the following probability information: P(100)=0.4. P(150)=0.3, and P(200)=0.3.
a. which alternative should be chosen based on the maximax criterion?
b. which alternative should be chosen based on the maximin criterion?
c. which alternative should be chosen based on the Lapalce criterion?
d. which alternative should be chosen based on the criterion of realism with alpha=0.7
e. which alternative should be chosen based on the minimax regret criterion?
f. what is the expected value under perfect information (EVPI)?