An ice cream stand at the beach wants to order some ice cream for the coming weekend. The demand for ice cream depends on the weather. The ice cream has to be ordered in 50-gallon units.

The profits that selling ice cream yield under different combinations of state, and ice cream order are presented here.

Historically, the probabilities of S₁ and S₂ during this time of the year are about .4 and .6, respectively.

(a) Find the minimax regret solution.

(b) Find the highest-expected-value solution.

(c) Compare the utility of ordering 50 gallons versus 100 gallons if the ice cream stand owner’s utility function is

where E is the expected wealth and S is the standard deviation of wealth.

Transcribed Image Text:

50 gallons 100 gallons Bad weather S $500 $300 Good weather S $500 $900