Consider the stochastic equipment replacement problem we discussed in class. Specifically, we need to have a...

 

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Consider the stochastic equipment replacement problem we discussed in class. Specifically, we need to have a machine for 5 periods. The quality of the machine -indexed with j- can be 0,1, or 2 with 0 being the best quality corresponding to a new machine. The cost of a new machine is R=8. The per-period cost of maintaining a machine of quality j is C(j) where C(0)=1, C(1)=3, C(2)=10. The salvage value of a machine of any quality is zero. The transition probabilities are given by the following table: F. State 0 1 2 0 1/3 1/3 1/3 B. State 10 1/4 3/4 1 200 Assume you start period 1 with new machine. Find the optimal (cost minimizing) policy. Consider the stochastic equipment replacement problem we discussed in class. Specifically, we need to have a machine for 5 periods. The quality of the machine -indexed with j- can be 0,1, or 2 with 0 being the best quality corresponding to a new machine. The cost of a new machine is R=8. The per-period cost of maintaining a machine of quality j is C(j) where C(0)=1, C(1)=3, C(2)=10. The salvage value of a machine of any quality is zero. The transition probabilities are given by the following table: F. State 0 1 2 0 1/3 1/3 1/3 B. State 10 1/4 3/4 1 200 Assume you start period 1 with new machine. Find the optimal (cost minimizing) policy.

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Answer To find the optimal policy we can use dynamic programming Let Vtj represents the expected cos... View the full answer