Reference no: EM132800145
The DellaVecchia Garden Center purchases and sells Christmas trees during the holiday season. It purchases the trees for $10 each and sells them for $20 each. Any trees not sold by Christmas day are sold for $2 each to a company that makes wood chips. The garden center estimates that four levels of demand are possible: 100, 200, 500, and 1,000 trees. Suppose that the probabilities of the demand for the different number of trees are as follows:
Demand (Number Of Trees) Probability
100 0.2
200 0.1
500 0.3
1000 0.4
-Compute the payoffs for purchasing 100, 200, 500, or 1,000 trees for each of the four levels of demand.
-Construct a payoff table, indicating the events and alternative courses of action.
-Construct a decision tree.
-Construct an opportunity loss table.
-Compute the expected monetary value (EMV) for each action.
-Compute the expected opportunity loss (EOL) for each action.
-Based on the results of EMV or EOL, which action would you choose? Why?
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Construct an opportunity loss table
: Compute the payoffs for purchasing 100, 200, 500, or 1,000 trees for each of the four levels of demand.
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