Farm Grown, Inc., produces cases of perishable food products. Each case contains an assortment of vegetables and other farm products. Each case costs $5 and sells for $15. If there are any cases not sold by the end of the day, they are sold to a large food processing company for $3 a case. The probability that daily demand will be 100 cases is 0.3, the probability that the demand will be 200 cases is 0.4, and the probability that daily demand will be 300 cases is 0.3.
Farm Grown has a policy of always satisfying customer demands. If its own supply of cases is less than the demand, it buys the necessary vegetables from a competitor. The estimated cost of doing this is $16 per case.
Probabilty 0.3 .04 .03 Demand/#of cases 100 200 300 EMV
100 $1000 $900 $800 $900
200 $800 $2000 $1900 $1610
300 $600 $1800 $3000 $1800
Required:
You have reason to believe the probabilities many not be reliable due to changing conditions. If these probabilities are ignored, what decision would be made using: (a) the optimistic criterion? b) the pessimistic criterion?