# Question

Buck and Bill Bogus are twin brothers who work at a gas station and have a counterfeiting business on the side. Each day a decision is made as to which brother will go to work at the gas station, and then the other will stay home and run the printing press in the basement. Each day that the machine works properly, it is estimated that 60 usable $20 bills can be produced. However, the machine is somewhat unreliable and breaks down frequently. If the machine is not working at the beginning of the day, Buck can have it in working order by the beginning of the next day with probability 0.6. If Bill works on the machine, the probability decreases to 0.5. If Bill operates the machine when it is working, the probability is 0.6 that it will still be working at the beginning of the next day. If Buck operates the machine, it breaks down with probability 0.6. (Assume for simplicity that all breakdowns occur at the end of the day.) The brothers now wish to determine the optimal policy for when each should stay home in order to maximize their (long-run) expected average profit (amount of usable counterfeit money produced) per day.

(a) Formulate this problem as a Markov decision process by identifying the states and decisions and then finding the Cik.

(b) Identify all the (stationary deterministic) policies. For each one, find the transition matrix and write an expression for the (longrun) expected average net profit per period in terms of the unknown steady-state probabilities (π0, π1, . . . , πM).

(c) Use your IOR Tutorial to find these steady-state probabilities for each policy. Then evaluate the expression obtained in part (b) to find the optimal policy by exhaustive enumeration.

(a) Formulate this problem as a Markov decision process by identifying the states and decisions and then finding the Cik.

(b) Identify all the (stationary deterministic) policies. For each one, find the transition matrix and write an expression for the (longrun) expected average net profit per period in terms of the unknown steady-state probabilities (π0, π1, . . . , πM).

(c) Use your IOR Tutorial to find these steady-state probabilities for each policy. Then evaluate the expression obtained in part (b) to find the optimal policy by exhaustive enumeration.

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