Question: Consider the stochastic equipment replacement problem we discussed in class. Specifically, we need to have a machine for 5 periods. The quality of the

Consider the stochastic equipment replacement problem we discussed in class. Specifically, we

 

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 full answer

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