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QSO 510

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Problem 1
Adele Weiss manages the campus flower shop. Flowers must be ordered three days in advance from her supplier in Mexico. Advance sales are so small that Weiss has no way to estimate the demand for the red roses. She buys roses for $15 per dozen and sells them for $40 per dozen. Pay-off table for the problem is given below.

Demand for Red Roses
Alternative Low (25 dozen) Medium (60 dozen) High (130 dozen)
Do nothing 0 0 0
Order 25 dozen 300,000 300,000 300,000
Order 60 dozen 100,000 600,000 600,000
Order 130 dozen -100,000 400,000 900,000
Probability 0.3 0.4 0.3

(Krajewski, L., Ritzman, L., & Malhotra, M. (2007). Operations Mangement (8th ed.). Upper Saddle Reiver, NJ: Prentice Hall)
What is the decision based on each of the following criteria? Show work in making the decision for each criterion.
a) EMV approach
b) EOL approach

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