Wednesday, March 13, 2019
Charles River Jazz Festival
Decision guide for Friday inviteing Mr. cover is trying to decide on how many CDs to press on the first night of the festival. His intuition combined with his experience allowed him to direct some predictions of demand. These take the form of probabilities. The probabilities may be subjective estimates from managers or from experts in a particular field, or they may reflect diachronic frequencies. If they atomic number 18 reasonably correct, they provide a decisiveness maker with supernumerary information that can dramatically improve the finish-making process. Since the problem is limited to Wards expected demands for CDs, we can say that our recognizable states of nature are the following ? Saturday shoot = kB and sunlight take in = 1000 ?Saturday Demand = 1000 and Sunday Demand = 3000 ?Saturday Demand = 3000 and Sunday Demand = 1000 ?Saturday Demand = 3000 and Sunday Demand = 3000 The minimum total demand for both(prenominal) Saturday and Sunday would be 2000 CDs, whe reas the maximum total demand for both Saturday and Sunday would be 6000 CDs.The intermediate total demand however is consistent at 4000 CDs. We can consolidate them to 3 states of nature ? Saturday Demand + Sunday Demand = 2000 ?Saturday Demand + Sunday Demand = 4000 ?Saturday Demand + Sunday Demand = 6000 permits call these states of nature d2, d4 and d6. We use the TreePlan software to create the decision tree for Wards problem. We specified the initial costs of productions as $24,000, $33,000 and $42,000.Additionally, we make sure to deduct the royalties from the sales revenue, since they are considered as succeeding(a) expenses (after the sales occur). Please see below for the decision tree. 2. Maximization of pass judgment Monetary cherish as a criterion The modal(a) or expected feedoff of each alternative is a weighted average the state of nature probabilities are used to weight the respective payoffs. ? therefore the expected pecuniary value for each alternative is as follows EMVp2 = $ 6,000EMVp4 = $ 12,000 EMVp6 = $ 10,500 accord to the maximization of Expected Monetary Value criterion, we can say that the conductor of the festival should press 4000 CDs on Friday night, since the Expected Monetary Value of that decision is optimal at $12,000. 3. Paying for perfect information If Ward could oblige information slightly the demand for CDs prior to committing to the CD production, there testament be an upper bound on the sum of money it would be reasonable to spend.The most Ward should pay for perfect information about the two-day demand for CDs can be calculated using the Expected Value of Perfect Information EVPI = EPC EMV, where EPC is the expected payoff under certainty, and EMV is expected monetary value with alternative p4. We calculate EPC as EPC = 0. 5 * 6000 + 0. 25 * 27000 + 0. 25 * 48000 = $ 21,750 EMV = $ 12,000 Total value of perfect information EVPI = $ 9750 It would be reasonable to pay $9,750 dollars to obtain perfect informati on. It is thus not worthwhile to spend much than that amount of money to obtain perfect information.