A chef must decide how many chocolate lava cakes to prepare for the upcoming Mother's Day Dinner special. The chef can either prepare 50, 100, or 150 lava cakes. Assume that demand for the lava cakes can be 50, 100, or 150. Each dish costs $5 to make and is priced at for $7 on the menu. Unsold cakes are donated to a nearby charity center. Assume that there is no opportunity cost for lost sales. Which alternative should be chosen based on the maximax criterion?

A chef must decide how many chocolate lava cakes to prepare for the upcoming Mother's Day Dinner special. The chef can either prepare 50, 100, or 150 lava cakes. Assume that demand for the lava cakes can be 50, 100, or 150. Each dish costs $5 to make and is priced at for $7 on the menu. Unsold cakes are donated to a nearby charity center. Assume that there is no opportunity cost for lost sales. Which alternative should be chosen based on the maximax criterion?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 46P

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The Tinkan Company produces one-pound cans for the Canadian salmon industry. Each year the salmon spawn during a 24-hour period and must be canned immediately. Tinkan has the following agreement with the salmon industry. The company can deliver as many cans as it chooses. Then the salmon are caught. For each can by which Tinkan falls short of the salmon industrys needs, the company pays the industry a 2 penalty. Cans cost Tinkan 1 to produce and are sold by Tinkan for 2 per can. If any cans are left over, they are returned to Tinkan and the company reimburses the industry 2 for each extra can. These extra cans are put in storage for next year. Each year a can is held in storage, a carrying cost equal to 20% of the cans production cost is incurred. It is well known that the number of salmon harvested during a year is strongly related to the number of salmon harvested the previous year. In fact, using past data, Tinkan estimates that the harvest size in year t, Ht (measured in the number of cans required), is related to the harvest size in the previous year, Ht1, by the equation Ht = Ht1et where et is normally distributed with mean 1.02 and standard deviation 0.10. Tinkan plans to use the following production strategy. For some value of x, it produces enough cans at the beginning of year t to bring its inventory up to x+Ht, where Ht is the predicted harvest size in year t. Then it delivers these cans to the salmon industry. For example, if it uses x = 100,000, the predicted harvest size is 500,000 cans, and 80,000 cans are already in inventory, then Tinkan produces and delivers 520,000 cans. Given that the harvest size for the previous year was 550,000 cans, use simulation to help Tinkan develop a production strategy that maximizes its expected profit over the next 20 years. Assume that the company begins year 1 with an initial inventory of 300,000 cans.
It costs a pharmaceutical company 75,000 to produce a 1000-pound batch of a drug. The average yield from a batch is unknown but the best case is 90% yield (that is, 900 pounds of good drug will be produced), the most likely case is 85% yield, and the worst case is 70% yield. The annual demand for the drug is unknown, with the best case being 20,000 pounds, the most likely case 17,500 pounds, and the worst case 10,000 pounds. The drug sells for 125 per pound and leftover amounts of the drug can be sold for 30 per pound. To maximize annual expected profit, how many batches of the drug should the company produce? You can assume that it will produce the batches only once, before demand for the drug is known.
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Please calculate the price elasticity of demand for this pair of headphones under the following conditions (please include each step for the calculation): When the price of this pair of headphones is $150, it can sell 500 pairs. When the price drops to $100, it can sell 1,000 pair.
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A dietitian has been asked by the athletic director to develop a snack that athletes can use in their training programs. The dietitian intends to mix two seperate products to make the snack. The following information (on the table below): Product A costs Php20 per ounce, while Product B costs Php10 per ounce. Determine the optimal quantities of each product that will give the minimized cost.
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for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands) depends on demand as follows. DEMAND STAFFING OPTIONS HIGH MEDIUM LOW Own Staff 650 650 600 Outside Vendor 900 600 300 Combination 800 650 500 Based on decision analysis under uncertainty, determine the best decision each of the model. Then compare all the model decision to make it overall conclusion.
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