Decision science

A wholesaler of stationery is deciding how many desk calendars to stock in inventory for the coming year. It is impossible for him to reorder, and leftover units are worthless. The following numbers indicate the possible demand levels:

Demand in 000's 100 300 200 400

The calendars sell for $105 per thousand and cost $75 per thousand (this cost includes inventory carrying costs) with a $5 per thousand sales commission cost. Replenishment costs are not included in the sales commission figure. There is no salvage value and no opportunity cost due to lost sales.

1. Assume the wholesaler regrets his decision for a given demand level, what is his optimum stock level when he believes he should keep his highest opportunity losses at the lowest level? Why? Show your work. Answer: Stock 100 or 200.

2. Assuming each demand has a similar possibility of occurring, what do you expect would be the profit at the optimum stock level? Why? Show your work. Answer: Stock 100 or 200.

3.What is the optimal stock action using the "criterion of realism" when alpha is .7?

4. Present the payoff table if there was a salvage value of $3 per thousand of unsold calendars and if there was a opportunity cost of lost sales of 2$ per thousand of unsold calendars. Just present the payoff table, no solution using any of the criteria of decision making under uncertainty.

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