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Audi sells snow tires which are ordered every Friday to meet next week's demand. The sales price for the most popular size is $30 per tire and its cost for Audi is $25. If too many tires are ordered Audi incurs an inventory holding cost of $2 per tire. If Audi is out of stock, it forgoes the profits from missed sales. Audi has the option to order 150, 200, or 300 tires to meet next week's demand which can be either 150, 200, or 300 tires. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 25% chance that the bid will be rejected. (PLEASE DO NOT USE A PAYOFF TABLE - USE REGULAR EXCEL AND SHOW STEPS OF HOW TO DO IT!)

a. Which alternative should be chosen using the expected monetary value (EMV) criterion?

b. What is the expected value under perfect information (EVPI)?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M91644063

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