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Please help me to check my answer for this question, thanks.
Variable cost per member are $70, $65, $60 and that a flexible pricing policy will result in the following outcomes.
Fee: $110 $100 $90
Number of subscriber: 45,000 58,000 80,000
a, Pay-off table:
Variable cost
70 65 60
$ $ ‘000
110 1,800 2,025 2,250
100 1,740 2,610 2,320
90 1,600 2,000 2,400
b, Maximax
Best outcome.
Price $110 $100 $90
1,800 2,610 2,400
Choose price of $100
c, Maximin
Worst outcome.
Price $110 $100 $90
1,600 2,000 2,250
Choose Price of 90
d, Regret rule
70 65 60
$110 0 585 150
100 60 0 80
90 200 610 0
Choose price of $90I do not have time to check your profits table.
Everything else seems correct except for (d). You should choose the smallest of the worst regrets – you have chosen the biggest!!!
(Surely whatever book you found this question in also has an answer in it???)
I do not have the exactly answer for this question. But in another similar question, it makes me confuse to choose the appropriate price.
For example, if I use maximax rule, I do not know to choose the best outcome based on which the variable cost has the best outcome or the price. It means that I should choose based on horizontal or vertical of the table.For maximax you identity the maximum outcome for each of the choices. Then you pick the choice that gives the maximum of the maximum.
Don’t learn it in terms of rows and columns – you can set up the table in whichever way you want.
You must understand each of the approaches – the examiner will test that you understand, not simply that you have learned a rule.
(The free lecture on this may help you)
So in the my above question, I should choose the outcome based on the price, right?
In the outcome table in the following, please help me to choose the appropriate fee for maximax, maximin, regret rule. I compared it to the answer but it seems different from the way that I used in the above question.
Fee Variable cost
95 85 70
$180 1,338,750 1,496,250 1,732,500
$200 1,378,125 1,509,375 1,706,250
$220 1,312,500 1,417,500 1,575,000There is no point in me simply typing out the answer – you have an answer and it is correct.
You will have to say which part of the answer you do not understand and then I will try and help.
(I assume you have watched my free lecture on decision making under uncertainty, where I explain each of the decision making techniques?)
In the above question, with maximax rule, I choose the best outcome based on the fee. For example, with the variable cost of $70, the fee has the best outcome is $110. Similarly, 2,610 for variable cost of $65 and 2,400 for $60. So I choose the fee of $100. It has the best outcome of 2,610.
In the second question, it similar to first question. But the answer showed that with maximax rule, the fee of $180 has the best outcome is 1,732,500. Best outcome of $200 is 1,736,250 and of $220 is 1,575,000. So the fee of $180 should be chosen.For maximax. for each choice (here it is the fee) you identify the best outcome (i.e. the highest contribution).
Then you choose whichever fee gives the best of those best outcomes (i,e, the highest).I really do suggest that you watch the lecture – I am sure it would help you.
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