The Fish House (TFH) in Norfolk, Virginia, sells fresh fish and seafood. TFH receives daily shipments of farm-raised trout from a nearby supplier. Each trout costs $2.75 and is sold for $4.95. To maintain its reputation for freshness, at the end of the day, TFH sells any leftover trout to a local pet food manufacturer for $1.60 each. Daily demand for the trout is an integer between 10 and 20 (inclusive). The owner of TFH wants to determine how many trout to order each day.
1. Construct a payoff table for this [10 points]
2. What purchase quantity should be made according to the maximax decision rule? [5 points]
3. What purchase quantity should be made according to the maximin decision rule? [5 points]
4. What purchase quantity should be made according to the Laplace (equally-likely) decision rule? [5 points]
5. What purchase quantity should be made according to the minimax regret decision rule? [10 points]
Historically, the daily demand for trout is given in the following table.
Demand
10
11
12
13
14
15
16
17
18
19
20
Probability
0.03
0.05
0.07
0.11
0.13
0.15
0.18
0.11
0.09
0.06
0.02
6. What purchase quantity should be made to maximize the expected daily profit? [5 points]
7. How much should the owner of TFH be willing to pay to obtain a daily demand forecast that is 100% accurate? [10 points]
