Question

I. Farm Grown, Inc., produces cases of perishable food products. Each case contains an assortment of vegetables and other farm products. Each case costs $5 and sells for $15. If there are any cases not sold by the end of the day, they are sold to a large food processing company for $3 a case. The probability that daily demand will be 100 cases is 0.3, the probability that the demand will be 200 cases is 0.4, and the probability that daily demand will be 300 cases is 0.3.

Farm Grown has a policy of always satisfying customer demands. If its own supply of cases is less than the demand, it buys the necessary vegetables from a competitor. The estimated cost of doing this is $16 per case.

Required:

(a) Draw a decision table for this problem.
(b)   What do you recommend?

Suppose that for #1 above, you have reason to believe the probabilities may not be reliable due to changing conditions. If these probabilities are ignored, what decision would be made using:

(a) the optimistic criterion?  

(b) the pessimistic criterion?

Answer 1