Page 419 - PM Integrated Workbook 2018-19

Answers

Example 7

Following up from the pay-off table example, Geoffrey’s Ramsbottom’s table
looks as follows:

Daily supply
40 50 60 70
Probability
salads salads salads salads
40 salads 0.10 $80 $0 $(80) $(160)
Daily
demand 50 salads 0.20 $80 $100 $20 $(60)
60 salads 0.40 $80 $100 $120 $40

70 salads 0.30 $80 $100 $120 $140

A new ordering system is being considered, whereby customers must order
their salad online the day before. With this new system Mr Ramsbottom will
know for certain the daily demand 24 hours in advance. He can adjust
production levels on a daily basis.

How much is this new system worth to Mr Ramsbottom?

X P
Supply = demand Pay off Probability px

40 $80 0.1 8
50 $100 0.2 20
60 $120 0.4 48

70 $140 0.3 42
––––
118
EV with perfect information =$118

EV without perfect information (Working 1) =$90
––––
Value of perfect information $28 per day

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