3.9 case 4 decision theory
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This document presents Case 4 on decision theory. It describes a situation where a dealer firm faces weekly demand for air coolers between 0-3 units. The firm must decide how many units to stock each week to minimize costs. Various decision criteria are applied to evaluate the optimal stocking strategy, including maximin, maximax, Laplace, Hurwicz, minimax regret, and expected monetary value. Stocking 2 units minimizes costs under maximin and minimax regret criteria, while stocking 2 units maximizes expected profit under Laplace, Hurwicz, and expected monetary value criteria.
3.9 case 4 decision theory
- 1. www.sanjivanimba.org.in Unit No.3. DECISION SCIENCE Presented By: Dr. V. M. Tidake Ph. D (Financial Management), MBA(FM), MBA(HRM) BE(Chem) Dean, EDP & Associate Professor MBA 1 Sanjivani College of Engineering, Kopargaon Department of MBA www.sanjivanimba.org.in
- 2. www.sanjivanimba.org.in 302-DECISION SCIENCE Unit No.3. Decision Theory 3.9 Case 4 Decision Theory Presented By: Dr. V. M. Tidake Ph. D (Financial Management), MBA(FM), MBA(HRM) BE(Chem) Dean EDP & Associate Professor MBA 2 Sanjivani College of Engineering, Kopargaon Department of MBA www.sanjivanimba.org.in
- 3. www.sanjivanimba.org.in DECISION THEORY At the End of the Session Student will be able to understand- A. Case 4: Decision Theory
- 4. www.sanjivanimba.org.in Case 4: Decision Theory Hindustan Sales Corporation is a dealer firm in white goods. It finds that the weekly holding cost per unit of an Air Cooler is Rs. 30 per week. Non Availability of an Air cooler results in loosing a customer. The cost for loosing a customer is estimated to be Rs. 80. The dealer, expects that the weekly demand for an air cooler will range from 0 to 3 units per week. a. Construct a Pay off Matrix b. Determine the optimal quantity to be stocked per week and the corresponding weekly cost using i) Maximin, ii) Maximax, iii) Laplace, iv) Hurwicz if Alpha is 0.6, v) Minimax Regret. The Probability Distribution is as follows- 0 1 2 3 0.1 0.3 0.4 0.2
- 5. www.sanjivanimba.org.in Case 4: Decision Theory Let, N0- State that the demand is 0 N1- State that the demand is 1 N2- State that the demand is 2 N3- State that the demand is 3 And, S0- Strategy of Stocking 0 Units S1- Strategy of Stocking 1 Units S2- Strategy of Stocking 2 Units S3- Strategy of Stocking 3 Units
- 6. www.sanjivanimba.org.in Case 4: Decision Theory STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 S0 S1 S2 S3
- 7. www.sanjivanimba.org.in Case 4: Decision Theory STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 S0 0 80 160 240 S1 30 0 80 160 S2 60 30 0 80 S3 90 60 30 0
- 8. www.sanjivanimba.org.in Case 4: Decision Theory STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 S0 0 -80 -160 -240 S1 -30 0 -80 -160 S2 -60 -30 0 -80 S3 -90 -60 -30 0
- 9. www.sanjivanimba.org.in Case 4: Decision Theory a. Maximin Gain Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Min. S0 0 -80 -160 -240 -240 S1 -30 0 -80 -160 -160 S2 -60 -30 0 -80 -80 (Maximin) S3 -90 -60 -30 0 -90
- 10. www.sanjivanimba.org.in Case 4: Decision Theory b. Maximax Gain Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Max S0 0 -80 -160 -240 0 (Maximax) S1 -30 0 -80 -160 0 (Maximax) S2 -60 -30 0 -80 0 (Maximax) S3 -90 -60 -30 0 0 (Maximax)
- 11. www.sanjivanimba.org.in Case 4: Decision Theory c. Laplace Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Average Profit S0 0 -80 -160 -240 -160 S1 -30 0 -80 -160 -90 S2 -60 -30 0 -80 -56.67 (Max) S3 -90 -60 -30 0 -60
- 12. www.sanjivanimba.org.in Case 4: Decision Theory d. Hurwicz Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Expected Profit S0 0 -80 -160 -240 -96 S1 -30 0 -80 -160 -64 S2 -60 -30 0 -80 -32 (Max) S3 -90 -60 -30 0 -36
- 13. www.sanjivanimba.org.in Case 4: Decision Theory e. Minimax Regret Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Expected Profit S0 0 80 160 240 240 S1 30 0 80 160 160 S2 60 30 0 80 80 (Minimax) S3 90 60 30 0 90
- 14. www.sanjivanimba.org.in Case 4: Decision Theory EMV Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 0.1 N1 0.3 N2 0.4 N3 0.2 EMV S0 0 -80 -160 -240 -136 S1 -30 0 -80 -160 -67 S2 -60 -30 0 -80 -31 (Max) S3 -90 -60 -30 0 -39
- 15. www.sanjivanimba.org.in EXERCISE State and Explain Case 4: Decision Theory.
- 16. www.sanjivanimba.org.in For More Details Contact Dr. V M Tidake tidkevishal@gmail.com tidkevishalmba@sanjivani.org.in