Wheels Distributors sells three types of tires to the commercial market. Type A. Type B and Type C. The anticipated payoffs are as follows for the three types of tires. Light DemandModerate DemandHeavy DemandProbability0.250.450.3Tire Type A$325,000 $190,000 $170,000 B$300,000 $420,000 $400,000 C-$400,000$240,000 $800,000 Construct a decision tree to help the management of Wheel Distributor make the appropriate decisions. This tree MUST be constructed in logical order with labels and net payoffs. Given the probabilities for the three types of tires and the expected monetary values, what decision should be made and what is that optimal expected value? What is the most should the firm be willing to pay to obtain further (perfect) information(EVPI) concerning the demand for the tires? 4. What decision should the firm make if the maximax criterion is used? 5. What decision should “the firm make if the maximin criterion is used? 6. What decision should the firm make if the LaPlace criterion is used?

The expected value of perfect information is the price that one would be willing to pay in order to…

Answered: Wheels Distributors sells three types…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Wheels Distributors sells three types of tires to the commercial market. Type A.

Type B and Type C. The anticipated payoffs are as follows for the three types of tires.

	Light Demand	Moderate Demand	Heavy Demand
Probability	0.25	0.45	0.3
Tire Type
A	$325,000	$190,000	$170,000
B	$300,000	$420,000	$400,000
C	-$400,000	$240,000	$800,000

Construct a decision tree to help the management of Wheel Distributor make the appropriate decisions. This tree MUST be constructed in logical order with labels and net payoffs.
Given the probabilities for the three types of tires and the expected monetary values, what decision should be made and what is that optimal expected value?
What is the most should the firm be willing to pay to obtain further (perfect) information

(EVPI) concerning the demand for the tires?

4. What decision should the firm make if the maximax criterion is used?

5. What decision should “the firm make if the maximin criterion is used?

6. What decision should the firm make if the LaPlace criterion is used?

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