The campus bookstore sells stadium blankets embroidered with the university cres
ID: 395380 • Letter: T
Question
The campus bookstore sells stadium blankets embroidered with the university crest. The blankets must be purchased in bundles of one dozen each. Each blanket in the bundle costs $65, and will sell for $90. Blankets unsold by homecoming will be clearance priced at $20. The bookstore estimates that demand patterns will follow the table below.
a. Build the decision table.
b. What is the maximum expected value?
Demand level
Probability
1 bundle
10 percent
2 bundles
30 percent
3 bundles
50 percent
4 bundles
10 percent
c. How many bundles should be purchased?
Demand level
Probability
1 bundle
10 percent
2 bundles
30 percent
3 bundles
50 percent
4 bundles
10 percent
Explanation / Answer
a) The decision table
Demand 1
Demand 2
Demand 3
Demand 4
EMV
Probability
0.1
0.3
0.5
0.1
Order 1
300
300
300
300
300
Order 2
-240
600
600
600
516
Order 3
-780
60
900
900
480
Order 4
-1320
-480
360
1200
24
b) The maximum expected value = 516
c) The number of bundles that should be purchased: 2 bundles get the maximum EMV, hence 2 bundles must be purchased
Demand 1
Demand 2
Demand 3
Demand 4
EMV
Probability
0.1
0.3
0.5
0.1
Order 1
300
300
300
300
300
Order 2
-240
600
600
600
516
Order 3
-780
60
900
900
480
Order 4
-1320
-480
360
1200
24
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