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How do I make a payoff table? I am having a problem making the table like in the Question Cement Co [June 2011 Past paper] ((whether to put the demand level or supply level in the rows or columns) & calculating all possible outcomes with possible expected values given for each of the outcomes at a certain level.
Do possible Outcomes represent the profit or contribution at each level?
Can you please explain how to tackle with pay-off table?
It does not matter whether you put the choices as columns or as rows (and the uncertain items on the other). What matters is that you calculate the outcomes correctly and then make the right decision depending which of the criteria you are being asked to use.
Have you watched my free lectures on Risk and Uncertainty, because I do work through an example showing how to prepare the payoff table and make the decisions?
If you still have specific problems with Cement after watching the lecture than do say 🙂
Yes, I’ve seen your lecture 🙂 It was helpful!
What I wanted to know to be sure whether the payoff table consists of only profit or contribution earned (not anything else) at each level of demand & supply if I am correct.
And the only thing which will be asked in PM exams is to calculate the profit for each level of demand & supply in a payoff table?
Also, I asked you “Do possible Outcomes mean the profit or contribution at each level?”
I think what will happen in case the probabilities for each outcome is not given clearly in the question, so is there any way to calculate them by any formula or something?
You are correct that the payoff table will show the profits or contributions (depending on what the question asks for) for each combination of supply and demand.
Questions in the exam can require preparation of the payoff table and the decision to be made for whichever of the criteria the question asks for.
Yes – the outcome is the profit or contribution.
If the question requires you to use the expected value criteria then the probabilities will be given in the question.
Sir, Please correct me if I wrong anywhere!
It is a question CEMENT CO where it is required to make a pay-off table BUT I have made it by changing the Demand & Supply level.
[Supply]—–[Probability]———————-[Demand]
————————————-[350,000]—–[280,000]—–[200,000]
350,000———0.25————–1750———–1400———-1000
280,000———0.45————–1085———–1400———-1000
200,000———0.30—————325————-640———–1000Outcome 1:
Proft (350,000 x 5) = 1750Outcome 2:
Profit (280,000 x 5) = 1400 – 315 = 1085And it goes on…
As u said it does not matter whether you put the choices as columns or as rows so I put Supply in COLUMN & Demand in ROWS. BUT if I do otherwise by putting Supply in ROWS & Demand in COLUMNS, it will not change anything. correct? 🙂
[Demand]—–[Probability]———————[Supply]
————————————-[350,000]—–[280,000]—–[200,000]
350,000———0.25————–1750———–1400———-1000
280,000———0.45————–1085———–1400———-1000
200,000———0.30—————325————-640———–1000Outcome 1:
Profit (350,000 x 5) = 1750Outcome 2:
Profit (280,000 x 5) = 1400 – 315 = 1085So it does not matter in which way you present the Demand & Supply as either Rows or Columns. Is that correct SIR?
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