An Appliance Dealer Must Decide How Many (If Any)new Microwave

question 70

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 0.3,0.4,0.2,and 0.1,respectively.The dealer is considering conducting a telephone survey on 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:

Growth Time

The period required for an organism, cell, or organ to grow to its full size or for a population to double.

Temperature

A measure of the average kinetic energy of the particles in a system, which determines how hot or cold the system is.

ADH

An abbreviation for Antidiuretic Hormone, a hormone that helps regulate the body's balance of fluids by reducing the production of urine.

Development Time

The period required to progress or complete a project, process, or stage of development.