A company has installed a machine costing Rs.

4 lacs and is in the process of deciding on an

appropriate number of a certain spare parts required for repairs. The spare parts cost Rs. 4000 each
but are available only if they are ordered now. In case the machine fails and no spares are available
the cost to the company for repairing the plant would be Rs. 18,000. The plant has an estimated life
of 8 years and the probability distribution of failures during this time, based on experience with
similar machines is as follows:

No. of failures 0 1 2 3 4 5 6+
during 8
yearly period
Probability 0.1 0.2 0.3 0.2 0.1 0.1 0

Determine the following:

a)The optimal number of units of the spare part on the basis of

i)minimax principle

ii)minimin principle

iii)Laplace principle

iv)Hurwicz principle(taking α=0.7)

v)expected cost principle

b)expected number of failures in the 8 year period

c)The regret table, and the optimal choice on the basis of least expected regret criterion

d)EVPI

Hint: If F represent the number of failures, S the number of spares and C the total cost, the cost
function can be stated as follows:

C=4000S, When F<=S

C=4000S +18,000(F-S) when F>S