Answer (D) is correct . With perfect information, the seller could order the inventory each day to meet the exact demand. For example, if demand were zero, supply would be ? zero and the seller would not lose any money. If demand were 2 units, the seller would acquire an equal supply and make a profit of $40. The total profit can be calculated by weighting the payoff from each best option. Demand Payoff Probability Weighted Payoffs 0 $????0 ¡Á .1 = $??0 2 40 ¡Á .3 = 12 4 80 ¡Á .4 = 32 6 120 ¡Á .2 = 24 Expected Profit $68
Answer (A) is incorrect because With perfect information, the seller could order the inventory each day to meet the exact demand. The total profit can be calculated by weighting the payoff from each best option.
Answer (B) is incorrect because With perfect information, the seller could order the inventory each day to meet the exact demand. The total profit can be calculated by weighting the payoff from each best option.
Answer (C) is incorrect because With perfect information, the seller could order the inventory each day to meet the exact demand. The total profit can be calculated by weighting the payoff from each best option.
|
Butler and Burnside’s expected profit with perfect information is
