How many cars should you order based on the expected value

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Reference no: EM133399443

Question: You work for a small car dealership. You must decide how many new cars (of the latest model) to order. Because of shipping costs, orders must be placed in multiples of 20. You can either order 20, 40, 60 or 80 cars. Each car costs 30k if you order 20 - for quantities greater than 20, you receive a discount of 2% per multiple of 20 ordered (40 cars would be 4%, 60 would be 6%, etc). The cars can be sold for $35K each. Any that are left unsold can be auctioned after the season is over for $25k.

a) Build a payoff table (in thousands) to provide the payoffs if the demand ends up being 10 cars, 30 cars, 50 cars or 70 cars.

b) How many cars should you order based on the

i. Maximin approach?

ii. Maximax approach?

iii. MinimaxRegretapproach?

c) You now find out that the probability that you will sell 10 cars is 20%, 30 cars is 40%, 50 cars is 30% and 70 cars is 10%.

i. How many cars should you order based on the expected value approach?

ii. What is the expected value?

Reference no: EM133399443

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