The owner of a newspaper stand purchases newspapers at the beginning of the day without knowing how many will be sold that day. At the end of the day any remaining newspapers have to be discarded (they are valueless) therefore if he purchases more than needed he looses the purchase price money and if he purchases less than needed he losses the corresponding profits. The unit cost of each newspaper is $0.10 and the selling price is $0.25, develop a payoff table considering four possible alternatives: to purchase 0, 100, 200 or 300 units and assume that the states of nature correspond to demand leves comparable to the amount purchased.
a) How many newspapers should he purchase according to the Maxim in Criterion?
b) Assume that all states of nature are equally likely, which alternative should he chose?

Answer rating: 100% (QA)

Required solution Ans a Cost of shortage selling price cost 02501 015 Cost of excess cost salvage va... View the full answer