- This topic has 4 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Please explain the a) answer to example 1?
How 2900 is calculated (at 400u demand and 300u contract?)1,200 units can be made max.
If 300 contracted to special customer: profit = 300 x (9 – 6) = 900
400 demanded from outside can still be made and sold . Profit = 400 x (11 – 6) = 2000
Total profit = 2,900
At the other extreme, 900 demanded but 800 contracted.
800 x (9 – 6) = 2,400
only 400 of the 900 demanded can be supplied because maximum production= 1,200
Profit = 400 x (11 – 6) = 2,000
Total profit = 4,400
Another question regarding minimal regret.
In this example they Compare the worst regrets for each option. And get the least worst regret as an answer.
If I follow the method per Emily Wolf study book, I would sum up all regret amounts for each option and pick the least total regret. I came up with the same answer as in open tuition answer but still wonder which is best?
Their answer is contract 700 units with least regret of 800.
My solution:
Is the same 700 units but total regret for this option would be 1,500.
And 3,300 for 300units
1,900 for 500 units
1,800 for 800 units.Please give advice.
You should not sum regrets. Summing regrets implies that all are equally likely to occur. In effect you are doing a kind of expected value where the expected value would be the average of the outcomes. The point of using maximin, minimax regret etc is that you do NOT know the probabilities of each occurring.
- You must be logged in to reply to this topic.