#### Risk and Uncertainty: Please note that this lecture relates to Chapter 10 of the Course Notes (not chapter 9 as stated in the lecture). The example covered is on page 46 of the Course Notes.

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cynthia says

hi sir,

thank you for the lectures it makes me understand and is a shorter version of the coursework notes..

i have a question, i do not understand how you got the probabilities of the demand ie, 0.2, 0.3, 0.4, 0.1. kindly explain.. and in such questions is it a must to calculate the expected values?

John Moffat says

The probabilities are given in the question (I assume that you have downloaded the free lecture notes that go with the lectures) – you cannot be expected to calculate them.

With regard to the expected values, the question will specify whether or not they are required (usually they will be required 🙂 )

Ahlam says

Hi sir,

I am totally lost in example 1 cant seem to derive any answer i have been stuck for 2 days now please help me. Kindly guide me through it?

John Moffat says

Have you watched the lecture carefully, because I cannot guide you through it any differently than I guide through in the lecture.

Udara says

Hello Sir,

Your lectures are crystal clear and very easy to understand the huge contents in text books in a lesser time.

Have I mistaken the part that where you calculate the Expected values for 3400×0.3=1120? Shouldn’t it be 1020? Have I mistaken or were there a reason for 1120 to arrive at? 🙂

John Moffat says

It was a little mistake – sorry 🙂

Udara says

Oh alright 🙂

John Moffat says

🙂

adanma says

Great lecture. Helped with my revision. Thanks John

John Moffat says

Thank you 🙂

Mashal Khan says

Sir,

In BPP revision Kit Question 38 (Shifters and Haulage) SH. The probability of the higher demand figure of 0.6 is given in the question but the lower demand figure is not there. And in the answer to that question, they have written 0.4 to be the probability of the lower demand.

Now the problem is, that I don’t see any where in the question that the probability of the lower demand figure is 0.4.

Have they split the probability of 1 into 0.6 and 0.4 for high and low demand respectively? because i don’t see any reason where 0.4 had come from.

John Moffat says

You must ask questions like this in the Ask the Tutor Forum and not as a comment on a lecture.

If there two possibilities and one has a 0.6 (or 60%) probability then the other must have a 0.4 (or 40%) chance of occurring. The total probability must always be 1 (or 100%) because one of the two is certain to happen.

Mashal Khan says

I am really sorry for asking the question at the wrong place. I’ll be very careful next time. Anyway, your answer was really helpful.

Thank you so much. You’re amazing… (Y)

John Moffat says

You are welcome 🙂

sunday says

Thanks. I now understand how the figures are derived. I had problem with maximum capacity of 1,200 uints till now.

John Moffat says

Great 🙂

hossm says

Hi, sir john Moffat , thank you very much for the amazing lecture,you are amazing

precious says

Hello John Just want to say THANK YOU!.

That’s all. 🙂

John Moffat says

And thank you from me 🙂

Aley says

Dear John,

The probabilities relates to ordinary profits ,But profits are certain for signing contract at different levels ,so ,in expected value ,why we taking whole profits and then multiplying with probability,as i understand it includes also profits of contracts also..please rectify me if i m going wrong ….

John Moffat says

You are quite correct in saying that the profit from the contract is fixed at each level.

However, there are two problems in what you are suggesting.

One is that the question specifically asks for a table showing all of the possible total profits (and exams always do), so if you do not show the total profit for all the possibilities you will lose a lot of marks.

The second problem is that because we have to supply the contract amount, we are not always able to supply the full normal demand. If you correctly took this into account, then you would end up with the same final answer (but you would still lose a lot of marks because of the first problem).

muhdin says

Dear professor.

Regarding example one of that you are working in this video, you were given the demand with uncertainty and you were told that customer offered you to sell your products to him for 9 in turn for a fixed quantity every month, therefore my question is, how did you come up with outcome and decision sides of the matrix….as per your calculation, you used demand as decisions(options available) and the fixed offer from the customer as outcome….. how I perceived was that the demand(given in the question) is the production levels available and that is why you have chosen it as decision options available.

John Moffat says

The production will be equal to the total demand, provided it does not exceed the capacity of 1,200 units.

The demand will be the total of whatever we sign the contract for (which will have to be supplied) plus the normal demand.

The decision is as to what level of contract to sign (we are told this in part (b)).

The uncertainty is the level of normal demand (we know this because the second paragraph of the question says so).

Lilit says

Hi,

Once more thanks for lectures.Could we come to the same conclusion if we calculate average demand, and assuming that is the demand, calculate all profits and choose the max ?

tayiba1 says

when calculating expected values the profit giving 3400 with probability of 0.3 it will equal 1020 not 1120 this must be corrected immediately.

thank you

John Moffat says

It will certainly not be corrected immediately and do not ever insist that that it must be!!!

(If you had read the later comments on this page then you would have seen that this has already been pointed out)

Anyone can make tiny arithmetic mistake – what is important for the exam is that you can prove that you understand. A simple arithmetic mistake is trivial and only ever loses at most one mark.

If you are not happy with that then you should get books or lectures from elsewhere and pay for them (and then be surprised as to how many mistakes they make!).

tayiba1 says

thank you perfectly understood the topic you give very good lectures especially when in classroom and ask questions which are very lively which makes the lesson very interesting i am always enjoying your jokes passed around u really make acca enjoyable.

vttrang says

Got the same problem with the expected value but understood the logic now, hope it can help those who are confused:

The total of all probabilities is 1 so whether you calculate the contract profit separately or together with the other demand profits, it’s all the same.

John Moffat says

Except that questions usually ask specifically to state all possible total profits, in which case there is no choice.

eduardoneves44 says

thanks professor you are the best.

Maryam says

Dear John!

You are simply the best! I rest my case!

Tyler says

Sir, for the par b (i) Expected values, why are we taking the profit of the the contract as well and multiplying it by a probability which is for the demand only?

John Moffat says

Because each of the profits results from each of the different demands.

So the probability of getting each of the profits will be the same as the probability of each of the demands.

Macha says

I had the same question. Thank you very much.

Xiaowen says

Hello Prof Moffat,

i have a bit trouble understanding when we were calculating the expected value, for example, contract 300, if we are sure of this 300 units, why we calculated by 2900*0.2, rather 900+2000*0.2, since it’s the 400 units that are uncertain.

Thanks!

Xiaowen says

just saw the below comment, and did a quick cal for

method in the video : 2900*0.2 +3400*0.3+4400*0.4+5400*0.1 = 4000

however, 400*5*0.2 + 500*5*0.3+700*5*0.4+900*5*0.1 +300*3 = 3900

get more confused……

Xiaowen says

Figured out the problem. it was the math in the video that got a problem. should be 3900. Thanks for the nice lecture!

eniola03 says

Hello John,Thank you very much for your video

It is really helpful but I want to verify on what you said about the possible profit.,you said we shouldn’t calculate all the profit in the exam as it might take our time in the exam. but what if the marks are allocated according to all the possible profit calculated or It doesn’t matter and Like how many do you think we should calculate in the exam?

John Moffat says

You misunderstood me 🙂

You should calculate all possible profits. What I said was that since the same arithmetic keeps repeating, there is no need to spend time showing the workings for all of them (if you can calculate them straight on your calculator).

Show workings for a few of them (to prove you know what you are doing) but you don’t need to show the workings for all to them (unless you need workings for your own benefit).