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ACCA F5 Risk and Uncertainty – Maximin

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  4. hello sir, what is the concept behind placing the circumstance on yaxis and decision options on xaxis i m confused in constructing a payoff table only

    • There is no x and y axis – we are not drawing a graph 馃檪
      You can set up the table any way you want – there is no concept involved in setting up the table.
      The concept you are being tested on his how we make the decision – not how the table is set up.

  5. This is the worst time i have ever have to replay this particular page just to understand the rules.
    The normal customers , what rules or basis are you selecting the normal customers.
    Choice Demands are 400 500 700 900
    300
    500
    700 or
    800

    Now the first choice 300u was picked up at a profit of $3 = 1500
    Normal demand was 400u @ $5. = 2000
    Total $2900
    The second choice was 500u @ profit of $3. = 1500
    Now is my biggest problem is What is the normal demand to get our total units and profit
    The third choice was 700u @ $3 = 2100
    What is the next normal demand to give us the total profit and total units,
    You choose 500 which was the second normal demand according to the questions …… please i need help as this is driving my head so crazy.

    Thanks in advance .

    • I am not quite sure what you are asking.
      We need to calculate the profit from all 16 combinations of possible contract sizes and possible normal demands.
      I shows the workings for 3 of them in full and then filled in the rest.

      What may be causing your problem is that whatever happens we must make the contact units. Also, since the maximum we can make is 1,200 units, we can only sell a maximum of whatever is left after supplying the contract to the normal customers.

      So, for example, if we sign a contract for 700 units, then the most we can supply to normal customers is 500 units (even if they actually demand 700 or 900 units).

  6. Dear mr John,

    Can you please explain why you used 400 units for normal demand ? I understand the choice for 300 units, but the normal demand part is still unclear for me. If I didn’t know the answer I would probably multiply the normal demand level to the probability, because there is no 100% guarantee that 400 units will be sold. Thank you in advance 馃檪

    • I assume that you have downloaded the free lecture notes that go with the lectures, in which case we know that the normal demand will be either 400, 500, 700 and 900.
      You are quite right in saying that there is no guarantee that 400 will be sold – again, it will be either 400, 500, 700 or 900 that will be sold, and we therefore calculate what the profit will be for each of those 4 possible outcomes.
      Then we apply the relevant rule (depending on whether we are using maximin, maximax, expected values, or minimax regret).

  7. Hello Sir,

    Question (a).. calculating all possible profits?
    What is the reason for adding the 2 profits from Contract size and uncertain demand?
    As the per contract,if there is guaranteed sales, there shd be no uncertain demand arising… please correct me if Im wrong?

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