Neapolitan
Profit (𝑥𝑖𝑖
)
Probability
(𝑃𝑖𝑖)
𝑃𝑖𝑖𝑥
𝑖𝑖
35 0.15 5.25
45 0.30 13.5
50 0.35 17.5
60 0.20 12
E(x) = 48.25
Chicago deep dish
Profit (𝑥𝑖𝑖
)
Probability
(𝑃𝑖𝑖)
𝑃𝑖𝑖𝑥
𝑖𝑖
35 0.20 7
45 0.35 15.75
50 0.30 15
60 0.15 9
E(x) = 46.75
BM1704
I. PROBLEM SOLVING. Compute for what is asked in the following items. Answers must be rounded up
to two (2) decimal points. (50 points)
1. The Yellow Cab Pizza wants to launch a new pizza variant next month. After deliberations with
their research department, marketing, finance and operations, they have broken down the
possible variants into two (2) options: the Neapolitan and Chicago Deep Dish. The table below
shows the possible profits (expressed in millions) for each option and the corresponding
probabilities:
Compute for expected value and decide which variant would help the firm earn more profit.
(2 items x 10 points)
- Neapolitan variant has an expected value of 48.25 which is higher than Chicago
deep dish that has 46.75 based on Expected value rule, choose the decision with
the highest expected value because of that Yellow Cab Pizza should launch
Neapolitan pizza variant next month.
2. Spirit technologies Inc. specializes in computer keyboards. They are analyzing the advantages
and disadvantages of increasing their supply of products to the Cyberhubs of SM Malls. Below is
a table showing the profits, expressed in thousands, supply and demand table for the firm:
Monthly supply for keyboards
150 300 450
Month demand for
keyboards
15
0
𝑃350 (𝑃100
)
(𝑃300
)
30
0
𝑃100 𝑃500 𝑃50
45
0
(𝑃50) 𝑃100 𝑃700
Use the following decision criteria to choose how much the firm should supply:
Maximax rule (5 points)
Under Maximax rule, spirit technologies Inc. will consider the highest payoff which is P700.
The firm will earn the highest payoff if they can respond to the highest demand for
keyboards, which is 450 keyboards. That is why they should supply 450 keyboards.
Monthly supply for keyboards
150 300 450
Month demand for
keyboards
15
0
𝑃350 (𝑃100
)
(𝑃300
)
30
0
𝑃100 𝑃500 𝑃50
45
0
(𝑃50) 𝑃100 𝑃700
Name:
Date:
Section:
Score:
