Practice Questions on EMV Criterion and EOL Criterion

1.         The company is going to launch 3 models model I, model II, model III with the estimated levels of demands Best, Better and good with probabilities 0.3, 0.5 and 0.2 respected. Estimated profits in lacs of ` is given in following pay off table. Use

(i)         EMV criterion

(ii)        EOL criterion to find best decision.

2.         Given the following pay – off matrix with probabilities of states of nature. Use EMV and suggest best course of action.

3.         An ABC company is bringing out a new type of toy. The company is attempting to decide whether to bringing out a full, partial or smallest product line. The company has three levels of demands good, fair and poor with estimated probabilities 0.2, 0.4 and 0.4 respectively. The pay off matrix is as under. (profit in `)

4.         Given following conditional pay off table. There are four Course of Actions and four states to nature.

            Given that P(S1) = 3K, P(S2) = 5K

            P(S3) = 8K, P(S4) = 4K

            Use EMV criterion and find best Act.                      (Ans. : Best Act using EMV is A4)

5.         A newspaper boy has the following probability of selling a magazine.

Cost of a copy is 3 rupees and Sale Price is 5 rupees. He cannot return unsold copies. How many copies should he order?

6.         A certain product is manufactured at ` 2 and sold at ` 4 per unit. The product is such that if is produced but not sold during a week’s time it become worthless. The weekly sales record in the past is as follows :

Suggest the optimal act which should be taken by the manufacturer of the product.

7.         A small industry finds from the past data, that the cost of making an item is ` 25, the selling price of a item is ` 30, if it is sold within a week, and it could be disposed at  ` 20 per item at the end of the week.

Find the optimum of items per – week should the industry produce.

8.         A the demand for a seasonal producer is as given below :

The product costs ` 600 per unit and sells at ` 800 per unit, are not sold within the season, they will have no market value.

(i)      Determine the optimum number of units to be produced.

(ii)     Calculate EVPI and interpret it.