Assignment 13

Submitted by: Ananth Ramesh (collaborated with Gautham S R)

Date: 11/24/2018 State of the W
1) A
1 -50
2 30
Action
3 10
4 -10

Payoff Table after deleting Row 3 since it was domin

State of the W
A
1 -50
Action 2 30
4 -10

Loss Table

State of the W
A
1 80
Action 2 0
4 40

2)
State of the world
I
Action 1 0
2 1
3 4
Payoff Table
State of the world
I
Action 1 12
2 11
3 8

(Solved using Logic)

State of the world

I
Action 1 0
2 1
3 4

(Verification)
 State of the World Comparing 1 to 2,3,4
B C D E
80 20 100 0 0 1 0 1 0
40 70 20 50 0 1 1 1 0
30 -30 10 40 0 1 1 1 0
-50 -70 -20 200 Total 1's = 8
No changes

eleting Row 3 since it was dominated -

State of the World

B C D E
80 20 100 0
40 70 20 50
-50 -70 -20 200

State of the World

B C D E
0 50 0 200
40 0 80 150
130 140 120 0

State of the world Comparing 1 to 2,3 Comparing 2 to 3

II III
3 6
1 0 0 1 1
0 1 0 1 1 0 1 0

No changes No changes
State of the world
II III
7 9
9 15
10 14

State of the world

II III
3 6
1 0
0 1
Comparing 2 to 3,4 Comparing 3 to 4

1 1 1 1 1
1 1 1 1 0 1 1 1
Total 1's = 9

Since all values of Row 2 are greater than Row 3, No changes

we can delete Row 3 from the table.

Comparing 3 to 2,1 Comparing 2 to 1

1 0 0 1 0 0
1 0 1

No changes No changes
 Comparing 4 to 1,2,3 Comparing 3 to 2,1

1 0 0 0 1 1
0 0 0 0 1 0
1 0 0 0 0 0 1

No changes Since all values of Row 3 are le

Row 2, Row 3 can be deleted.
Comparing 3 to 2,1 Comparing 2 to 1

0 0 0 1 1 0 1 0 1
0 0 0 0

Since all values of Row 3 are lesser than No changes

Row 2, Row 3 can be deleted.
3)

Average Demand
Standard Deviation
Average Cost
Selling Price
Discount Price
Profit
Loss below discount price
Probability
Z value
Selling Price $36 Optimal Order Quantity
Salvage $18
Goodwill $1.50

Demand Prediction
Order Size 100 150 200 250 300 Cost
100 $600 $600 $600 $600 $600 $ 30.00
200 $0 $900 $1,800 $1,800 $1,800 $ 27.00
300 ($450) $450 $1,350 $2,250 $3,150 $ 25.50

Since not all values are greater than the corresponding rows, there are no inadmissible actions.

Tree Diagram

Stock Order Lot Size Demand Prediction Payoff

100 $ 600.00
150 $ 600.00
100 200 $ 600.00
250 $ 600.00
300 $ 600.00

100 $ 0.00
150 $ 900.00
Decision 200 200 $ 1,800.00
250 $ 1,800.00
300 $ 1,800.00
 100 $ -450.00
150 $ 450.00
300 200 $ 1,350.00
250 $ 2,250.00
300 $ 3,150.00

Considering Cost of Goodwill as $1.50 per customer

Demand Prediction
Order Size 100 150 200 250 300 Cost
100 $600 $525 $450 $375 $300 $ 30.00
200 $0 $900 $1,800 $1,725 $1,650 $ 27.00
300 ($450) $450 $1,350 $2,250 $3,150 $ 25.50
Average Demand 200
Standard Deviation 79
Average Cost $ 26.75
Selling Price $ 36.00
Discount Price $ 18.00
Profit $ 9.25
Loss below discount price $ 8.75
Probability 0.514
Z value 0.0348
Optimal Order Quantity 203

Comparing 1 to 2,3 Comparing 2 to 3

1 0 0 0 0
1 1 0 0 0 1 1 1
 Comparing 3 to 1,2 Comparing 2 to 1

0 0 1 1 1 0
0 0 0 1 1
0 0
Comparing 2 to 1

1 1 1 1
 The data given

Alpha = 0.05
Beta= 0.1
AQL= P1= 0.50%
LPTD=P2= 3%
Hence p2/p1= 6
c= 2
np1= 0.818
P(A)
Therefore n= 163.6 approx = 164 1.2
Let N= 2000
1

p np P(A) AOQ
0.8
0 0 1 0
0.01 1.64 0.7778712082 0.007141 0.6
0.02 3.28 0.3498186993 0.006423
0.03 4.92 0.1170045899 0.003222 0.4
0.04 6.56 0.032994367 0.001212
0.05 8.2 0.0083057311 0.000381 0.2
0.06 9.84 0.0019231463 0.000106
0.07 11.48 0.0004167642 2.68E-05 0
0 0.01 0.02 0.03 0.04 0.05 0.06
0.08 13.12 8.5453375E-05 6.28E-06
0.09 14.76 1.6696881E-05 1.38E-06
AOQ
0.008

0.007

0.006

0.005

0.004

0.003

0.002

0.001

0
0 0.01 0.02 0.03 0.04 0.05
 P(A)

P(A)

0.03 0.04 0.05 0.06 0.07 0.08 0.09

AOQ

02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1

 y= -7.00E-08 0.0004 -0.0476
a b c
worst payoff -1000 intercept 0.25 to calculate y at the possible outcome
best payoff 3000 to calculate x at the possible outcome
possible result 1000
to calculate slope 0.00025 Hence risk premium=
ate y at the possible outcome 0.50
ate x at the possible outcome 121.5871

878.4129