I have a doubt about expected values. The customer contract is a fixed quantity so there no required to use the probability. So, isn’t it correct that we use the full contract value plus the probability of the expected market demand?

for eg: At contract 300 and demand 400, contract profit is 300×3, and demand profit is 400×0.2×5, so the expected value will be 1300?

The problem is that they will. not always be able to supply the expected normal demand. For example, if they have signed the contract to supply 500 units, then the most they can sell to the normal demand is 700 units (because the capacity is limited to 1,200 units) regardless of the size of the normal demand.

Hi John, im abit unsure on how we get to putting 400,500,700,900 at the top and 300,500,700,800 on side, is there a particular ruling which needs to be followed when labelling each side and then making the calculations, such as when we do maximin and minimax we go sideways but when looking at minimax regret we go downwards? im just confused as I always label the sides wrong and because of that all my workings are wrong,

It does not matter which way round you draw the table. What matters is that you identify what it is that is uncertain and what it is that we have to make a decision on. Don’t learn it just as rules – make sure you really understand the basis on which we are making the decision under each of the methods.

Well you are completely wrong – I do all of my teaching in non-English speaking countries in Eastern Europe 馃檪

I am puzzled that you only say this for this lecture. Have you not watched all of the previous lectures – if you have then you have presumably got used to my speaking? There is no point in watching a lecture out of order – the lectures are a complete free course and cover everything needed to be able to pass the exam well (and, of course, this lecture makes no sense on its own because it follows on from the earlier chapters).

Hi John, I didn’t understand how you came up with expected value of 4500, if we signed the contract of 700, as I figured, profit is calculated like: 700*3+(1200-700)*5 = 4600, did I miss the point?

Hi John, I don’t understand why do we must use this way to calculate the EV if we using market research? How do we know to if this is the way to calculate the EV if we using market research to obtain perfect information?

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christafar says

Hello John,

I have a doubt about expected values. The customer contract is a fixed quantity so there no required to use the probability. So, isn’t it correct that we use the full contract value plus the probability of the expected market demand?

for eg: At contract 300 and demand 400, contract profit is 300×3, and demand profit is 400×0.2×5, so the expected value will be 1300?

John Moffat says

The problem is that they will. not always be able to supply the expected normal demand. For example, if they have signed the contract to supply 500 units, then the most they can sell to the normal demand is 700 units (because the capacity is limited to 1,200 units) regardless of the size of the normal demand.

pateladam says

Hi John, im abit unsure on how we get to putting 400,500,700,900 at the top and 300,500,700,800 on side, is there a particular ruling which needs to be followed when labelling each side and then making the calculations, such as when we do maximin and minimax we go sideways but when looking at minimax regret we go downwards? im just confused as I always label the sides wrong and because of that all my workings are wrong,

Azka. says

I have the same question.

John Moffat says

It does not matter which way round you draw the table. What matters is that you identify what it is that is uncertain and what it is that we have to make a decision on. Don’t learn it just as rules – make sure you really understand the basis on which we are making the decision under each of the methods.

tugcem says

Thanks a lot John. Very clear again.

Does the syllabus include sensitivity analysis and simulation?

Shivangi says

Isn’t that part of the FM syllabus? (Where simulation isn’t something we’re required to actually carry out in exam)

elenaakhra says

Oh dear… You speak so fast, I didn’t understand anything. It looks like you teach for students from english speaking countries only…

John Moffat says

Well you are completely wrong – I do all of my teaching in non-English speaking countries in Eastern Europe 馃檪

I am puzzled that you only say this for this lecture. Have you not watched all of the previous lectures – if you have then you have presumably got used to my speaking? There is no point in watching a lecture out of order – the lectures are a complete free course and cover everything needed to be able to pass the exam well (and, of course, this lecture makes no sense on its own because it follows on from the earlier chapters).

marblserockin says

Hi John, I didn’t understand how you came up with expected value of 4500, if we signed the contract of 700, as I figured, profit is calculated like: 700*3+(1200-700)*5 = 4600, did I miss the point?

marblserockin says

Sorry John, Just figured I missed one lecture.

ervlin says

Hi John, I don’t understand why do we must use this way to calculate the EV if we using market research? How do we know to if this is the way to calculate the EV if we using market research to obtain perfect information?

alie2018 says

Thank you John.

John Moffat says

You are welcome 馃檪