stat week 2

profilesbatniji
waldobooks.pdf

Case Study: Waldo Books

Waldo Books needs to decide how many copies of a new hardcover release to purchase for its shelves. The store has assumed that demand will be 50, 100, 150, or 200 copies next month and they need to decide whether to order 50, 100, 150 or 200 books for this period. Each book costs Waldo $20 and can be sold for $30. Waldo can sell any unsold books back to their supplier for $4.

a) Which option should Waldo choose if they use the maximax criterion? b) Which option should Waldo choose if they use the maximin criterion? c) Which option should Waldo choose if they use the equally likely

criterion? d) Which option should Waldo choose if they use the minimax regret

criterion? e) Which option should Waldo choose if they use the criterion of realism

with _ = 0.7?

After researching the market, Waldo Books has concluded that the probability of selling 50, 100, 150, and 200 next month is 20%, 35%, 25%, and 20% respectively.

f) Using expected monetary values, how many books should Waldo order? g) Using expected opportunity loss, how many books should Waldo order? h) What is the most Waldo would be willing to pay for additional

information?