The following are revision problems for chapters 3

and 6.

The length of the problems do not represent typical test questions; they only serve as
revision of the topics discussed.

Problem
A.

SCENARIO 1 SCENARIO 2 SCENARIO 3

SCENARIO 4

Option 1 $5,000 $5,000 $5,000 $5,000

Option 2 $10,000 $5,000 $2,000 $0

Option 3 $20,000 $7,000 $1,000 -$5,000

Option 4 $30,000 $15,000 -$10,000 -$20,000

Probability 0.25 0.25 0.25 0.25

1) Determine decision under uncertainty if:

a)
optimistic

b)
pessimistic

c) realism (alpha =
0.65)

d) equally
likely

e)
minimax

2) Determine decision under risk if:

 a) EMV for each
option.

b)
EVPI

3) Suppose there were only two states-of-nature, namely Scenario 1 and

Scenario 2,
Perform a Sensitivity Analysis to
determine:

a) what is the probability interval under which Option 1 is most

feasible.

b) what is the probability interval under which Option 3 is most

feasible.

Problem
B.

1) Annual demand for the Doll two-drawer filing cabinet is 50,000 units. Bill Doll,
president
of Doll Office Suppliers, controls one of the largest office supply stores in
Nevada. He estimates that the ordering cost is $10 per order. The carrying cost
is $4 per unit per year. It takes 25 days between the time that Bill places an
order for the two-drawer filing cabinets and the time when they are received at
his warehouse. During this time, the daily demand is estimated to be 250 units.

a) What is the economic order quantity? b)

What is the reorder point? c) What is the
optimal number of orders per year?

2) Bill Doll (See Problem B-1) now believes that the carrying cost may be as high as
$16 per
unit per year. Furthermore, Bill estimates that the lead time is 35 days instead
of 25 days. Resolve Problem B-1 using $16 for the carrying cost with a lead-
time of 35 days.

3) Pampered Pet, Inc., is a large pet store located in Eastwood Mall. Although the
store
specializes in dogs, it also sells fish, turtle, and bird supplies. Everlast Leader,
which is a leather lead for dogs, costs Pampered Pet $7 each. There is an
annual demand for 6,000 Everlast Leaders. The manager of Pampered Pet has
determined that the ordering cost is $10 per order, and the carrying cost as a
percent of the unit cost is 25%. Pampered Pet is now considering a new supplier
of Everlast Leaders. Each lead would cost only $6.65, but to get this discount,
Pampered Pet would have to buy shipments of 3000 Everlast Leaders at a time.
Should pampered Pet use the new supplier and take this discount for quantity
buying?