Adele Weiss manages the campus flower shop. Flowers must be ordered three days in advance from her supplier in Mexico. Advance sales are so small that Weiss has no way to estimate the demand for the red roses. She buys roses for $15 per dozen and sells them for $40 per dozen. Pay-off table for the problem is given below.
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Demand for Red Roses
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|
Alternative
|
Low (25 dozen)
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Medium (60 dozen)
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High (130 dozen)
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|
Do nothing
|
0
|
0
|
0
|
|
Order 25 dozen
|
300,000
|
300,000
|
300,000
|
|
Order 60 dozen
|
100,000
|
600,000
|
600,000
|
|
Order 130 dozen
|
-100,000
|
400,000
|
900,000
|
|
Probability
|
0.3
|
0.4
|
0.3
|
What is the decision based on each of the following criteria? Show work in making the decision for each criterion.
a) EMV approach
b) EOL approach
Use the tables given below.
a) EMV Approach
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|
Demand for Red Roses
|
|
|
Alternative
|
Low (25 dozen)
|
Medium (60 dozen)
|
High (130 dozen)
|
EMV
|
|
Do nothing
|
|
|
|
|
|
Order 25 dozen
|
|
|
|
|
|
Order 60 dozen
|
|
|
|
|
|
Order 130 dozen
|
|
|
|
|
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Probability
|
0.3
|
0.4
|
0.3
|
|
b) EOL Approach
|
|
Demand for Red Roses
|
|
|
Alternative
|
Low (25 dozen)
|
Medium (60 dozen)
|
High (130 dozen)
|
EOL
|
|
Do nothing
|
|
|
|
|
|
Order 25 dozen
|
|
|
|
|
|
Order 60 dozen
|
|
|
|
|
|
Order 130 dozen
|
|
|
|
|
|
Probability
|
0.3
|
0.4
|
0.3
|
|