Use This Information to Answer the Following Questions

question 23

Essay

Use this information to answer the following questions.
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 an inventory carrying cost 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.
-Refer to the information above.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 using the expected monetary value (EMV)criterion?
b.What is the expected value under certainty?
c.What is the expected value under perfect information (EVPI)?

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Definitions:

Uncertainty

A situation in which the lack of surety about what is happening, what will happen, or what the potential outcomes are.

Alternative Solutions

Different options or approaches to solving a problem or addressing a situation.

Intuition

The ability to understand or know something immediately based on feelings rather than facts or evidence.

Creativity

The capacity to generate unique and worthwhile concepts.