1.
a. Manufacturing its own keyboard should be chosen for it has the best payoff (110,000) under
the maximax criterion.
b. Buying from a local manufacturer should be chosen for it has the best payoff (20,000) under
the maximin criterion
c. Buying from Japan should be chosen for it has the highest mean payoff (45,000) under the
LaPlace criterion.
d. Buying from Japan should be chosen for it has the lowest regret (20,000) out of all the worst
regret for each alternative.
2.
a. Expected Value
Manufacture
Buy From
Local
Buy From
Japan
Low
Moderate
High
0.25
-30,000
0.6
20,000
0.15
110,000
20,000
60,000
50,000
48,500
10,000
45,000
80,000
41,500
Expected
Value
21,000
b. The expected value of perfect information (EVPI) is 9,000
3.
High
1
Low
New Branch
0.60
0.40
Decision
0
High
Existing Branch
2
0.55
Low
NEW BRANCH
Terminal Node 3 New Branch; High Demand
Total Cost = 150,000
Total Revenue = 250,000
Total Profit = 100,000
Terminal Node 4 New Branch; Low Demand
Total Cost = 150,000
Total Revenue = 200,000
Total Profit = 50,000
EXISTING BRANCH
Terminal Node 5 Existing Branch; High Demand
Total Cost = 50,000
Total Revenue = 120,000
Total Profit = 70,000
Terminal Node 6 Existing Branch; Low Demand
Total Cost = 50,000
Total Revenue = 80,000
Total Profit = 30,000
Summary Table
Terminal Node
3
4
5
6
Total Profit
100,000
50,000
70,000
30,000
For Node 1, the EMV is given by 0.60(100,000) + 0.40(50,000) = 80,000
For Node 2, the EMV is given by 0.55(70,000) + 0.45(30,000) = 52,000
With the two alternatives, the best one is to open up a new branch with an EMV of 80,000.
4.
4 Low 0.3
5 Moderate
1
0.5
6 High 0.2
Cubao
7 Low 0.3
8 Moderate
0
0.5
9 High 0.2
Gilmore
10 Low 0.3
Makati
11 Moderate 0.5
3
CUBAO BRANCH
Terminal Node 4 Cubao Branch; Low Probability
Total Cost = -75,000
Total Profit = -75,000
Terminal Node 5 Gilmore Branch; Moderate Probability
Total Cost = -85,000
Total Profit = -85,000
Terminal Node 6 Makati Branch; High Probability
Total Cost = -150,000
Total Profit = -150,000
GILMORE BRANCH
Terminal Node 7 Cubao Branch; Low Probability
Total Cost = -100,000
Total Profit = -100,000
12 High
0.2
Terminal Node 8 Gilmore Branch; Moderate Probability
Total Cost = -120,000
Total Profit = -120,000
Terminal Node 9 Makati Branch; High Probability
Total Cost = -150,000
Total Profit = -150,000
MAKATI BRANCH
Terminal Node 10 Cubao Branch; Low Probability
Total Cost = -150,000
Total Profit = -150,000
Terminal Node 11 Gilmore Branch; Moderate Probability
Total Cost = -170,000
Total Profit = -170,000
Terminal Node 12 Makati Branch; High Probability
Total Cost = -200,000
Total Profit = -200,000
Summary Table
Terminal Node
4
5
6
7
8
9
10
11
12
Total Profit
-75,000
-85,000
-150,000
-100,000
-120,000
-150,000
-150,000
-170,000
-200,000
For Node 1, the EMV is given by 0.3(-75,000) + 0.5(-85,000) + 0.2(-150,000) = -95,000
For Node 2, the EMV is given by 0.3(-100,000) + 0.5(-120,000) + 0.2(-150,000) = -120,000
For Node 3, the EMV is given by 0.3(-150,000) + 0.5(-170,000) + 0.2(-200,000) = -170,000
The lowest cost of business operation is opening a new branch in Cubao with an expected value
of -95,000.
5.
a. Three-Period Weighted Moving Average Forecast
1
35,000
50,000
65,000
55,000
70,000
75,000
69,500
71,250
71,475
10
71,012.5
For Period 7: (55,000*0.2)+(70,000*0.3)+(75,000*0.5) = 69,500
For Period 8: (70,000*0.2)+(75,000*0.3)+(69,500*0.5) = 71,250
For Period 9: (75,000*0.2)+(69,500*0.3)+(71,250*0.5) = 71,475
For Period 10: (69,500*0.2)+(71,250*0.3)+(71,475*0.5) = 71,012.5
b. Four-Period Weighted Moving Average Forecast
1
35,000
50,000
65,000
55,000
70,000
75,000
68,500
69,400
70,310
10
70,144
For Period 7: (65,000*.1)+(55,000*.2)+(70,000*.3)+(75,000*.4) = 66,250
For Period 8: (55,000*.1)+(70,000*.2)+(75,000*.3)+(66,250*.4) = 66,562.5
For Period 9: (70,000*.1)+(75,000*.2)+(66,250*.3)+(66,562.5*.4) = 69,453.1
For Period 10: (75,000*.1)+(66,250*.2)+(66,562.5*.3)+(69,453.1*.4) = 69,316.4
c. Weighted Moving Average
1
35,000
50,000
65,000
55,000
70,000
75,000
73,000
73,800
73,480
10
73,608
For Period 7: (70,000*.4)+(75,000*.6) = 73,000
For Period 8: (75,000*.4)+(73,000*.6) = 73,800
For Period 9: (73,000*.4)+(73,800*.6) = 73,480
For Period 10: (73,800*.4)+(73,480*.6) = 73,608
6.
Month
Demand
Actual Demand
February
200
250
(250*0.30) + (200*(1-0.30)) = 235
March Demand = 215
7.
For alpha = 0.20
(45,000*0.20) + (38,251*(1-0.20)) = 49,601
Period 8 Demand = 39,601
Mean Absolute Deviation = 14,001
Squared Error = 255,489,828
Absolute Percent Error = 31%
Period
Actual
Forecast
Absolute
Deviation
Squared Error
Absolute
Percent
Error
20,000
20,000
0.00%
35,000
20,000
15,000
225,000,000
42.86%
46,000
23,000
23,000
529,000,000
50.00%
40,000
27,600
12,400
153,760,000
31.00%
50,000
30,080
19,920
396,806,400
39.84%
55,000
34,064
20,936
438,316,096
38.07%
45,000
38,251
6,749
45,546,301
15.00%
39,601
14,001
255,489,828
31%
Mean
For alpha = 0.50
(45,000*0.50) + (49,594*(1-0.50)) = 50,000
Period 8 Demand = 47,297
Mean Absolute Deviation = 7,799
Squared Error = 121,566,546
Absolute Percent Error = 18%
Period
Demand
Actual
Absolute
Deviation
Squared Error
Absolute
Percent
Error
20,000
20,000
0.00%
35,000
20,000
15,000
225,000,000
42.86%
46,000
27,500
18,500
342,250,000
40.22%
40,000
36,750
3,250
10,562,500
8.13%
50,000
38,375
11,625
135,140,625
23.25%
55,000
44,188
10,813
116,910,156
19.66%
45,000
49,594
-4,594
21,102,539
-10.21%
47,297
7,799
121,566,546
18%
Mean
