Page 197 - P1 Integrated Workbook STUDENT 2018

Risk and uncertainty

2.2 Pay off tables

 These show the profits that can be made from different possible outcomes.
There are normally two factors to consider – demand (which forms one axis of
the table) and supply (which forms the other axis).

 The table shows the different profits from each different combination of demand
and supply. For example, if there are 3 different supply (or order) levels, and
three different possible demand levels then there will be 9 (3 × 3) different
potential profit levels.

 Probabilities are used on these different profit levels to calculate expected
profits (which are then used for decision making).

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