An Appliance Dealer Must Decide How Many (If Any) New

question 47

Essay

An appliance dealer must decide how many (if any) new microwave ovens to order for next month. The ovens cost $220 and sell for $300. Because the oven company is coming out with a new product line in two months, any ovens not sold next month will have to be sold at the dealer's half price clearance sale. Additionally, the appliance dealer feels he suffers a loss of $25 for every oven demanded when he is out of stock. On the basis of past months' sales data, the dealer estimates the probabilities of monthly demand (D) for 0, 1, 2, or 3 ovens to be .3, .4, .2, and .1, respectively.
The dealer is considering conducting a telephone survey on the customers' attitudes towards microwave ovens. The results of the survey will either be favorable (F), unfavorable (U) or no opinion (N). The dealer's probability estimates for the survey results based on the number of units demanded are: ​
a.
What is the dealer's optimal decision without conducting the survey?
b.
What is the EVPI?
c.
Based on the survey results what is the optimal decision strategy for the dealer?
d.
What is the maximum amount he should pay for this survey?

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Definitions:

Free Recall Task

A method of assessing memory in which individuals are asked to remember and recount a list of items or events in any order without specific cues.

Tribal Children

Children born into and raised within indigenous tribal communities, often with distinct cultural, social, and linguistic traditions.

Nonschooled Children

Children who do not receive formal education through traditional schooling systems, including both those who are homeschooled and those who receive no schooling.

Organizational Strategies

Organizational Strategies are methods or approaches used to structure, arrange, and manage information, tasks, or physical spaces efficiently.