# GSCM 209 Week 6 Assignment

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## GSCM 209 Week 6 Assignment

A.2

Even though independent gasoline stations have been having a difficult time, Ian Langella has been thinking about starting his own independent gasoline station. Ian’s problem is to decide how large his station should be. The annual returns will depend on both the size of his station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Ian developed the following table:

 SIZE OF FIRST STATION GOOD MARKET (\$) FAIR MARKET (\$) POOR MARKET (\$) Small 50,000 20,000 –10,000 Medium 80,000 30,000 –20,000 Large 100,000 30,000 –40,000 Very large 300,000 25,000 –160,000

For example, if Ian constructs a small station and the market is good, he will realize a profit of \$50,000.

• a)Develop a decision table for this decision, like the one illustrated inTable A.2
• b)What is the maximax decision?
• c)What is the maximin decision?
• d)What is the equally likely decision?
• e)Develop a decision tree. Assume each outcome is equally likely, then find the highest EMV.

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A.3

Andrew Thomas, a sandwich vendor at Hard Rock Cafe’s annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):

 STATES OF NATURE (DEMAND) ALTERNATIVES BIG AVERAGE SMALL Large stock \$22,000 \$12,000 –\$2,000 Average stock \$14,000 \$10,000 \$6,000 Small stock \$ 9,000 \$ 8,000 \$4,000

The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average demand, and 0.2 for a small demand.

• a)Determine the alternative that provides Andrew the greatest expected monetary value (EMV).
• b)Compute the expected value of perfect information (EVPI).

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