Based on the expected value criterion

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John and Kathy run a small Paddle-board shop in Hawaii. They must order paddle-boards for the coming season. Orders for the paddle-boards must be placed in quantities of twenty (20). The cost per paddle-board is $70 if they order 20, $67 if they order 40, $65 if they order 60, and $64 if they order 80. The paddle-boards will be sold for $100 each. Any paddle-boards left over at the end of the season can be sold (for certain) at $45 each. If John and Kathy run out of paddle-boards during the season, then they will suffer a loss of "goodwill" among their customers. They estimate this goodwill loss to be $5 per customer who was unable to buy a paddle-board. John and Kathy estimate that the demand for paddle-boards this season will be 10, 30, 50, or 70 paddle-boards with probabilities of 0.2, 0.4, 0.3, and 0.1 respectively.

Explain how many paddle-boards they should buy, based on the Expected Value Criterion, Minimax Criterion and the Maximax criterion. Which is more reliable and why?

Reference no: EM131276793

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