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Due: October 6, 2009 (23 Points)
NOTE: In answering these questions, do not copypaste text from the articles. Use your own words.
1.
(4 points) Please refer to the Waffle House Case Study and answer the
following questions (Problem 4.4):
Based on your analysis in Problem 3 of Homework 2 (Problem 4.3 of the Waffle
House Case Study), answer the following questions:
a.
(1 points) Suppose once again that your operations management team
estimates from experience that the region is likely to be without electricity for
three days following a storm and that lost profits are $5,000 per day. How
many generators should be purchased to minimize the maximum regret?
The minimum of the maximum regret of this case is achieved with the purchase of
15 generators. This leads to a maximum regret of $15000.
b.
(1 points) What is the impact of your decision about the number of
generators to purchase if electricity is actually out for four days?
If the electricity is actually out for 4 days instead of 3, then the maximum regret
function
will
be
( ) ( )
( )
D
Q
Q
D


*
1000
,
*
19000
max
.
With
the
decision
of
purchasing 15 generators in the beginning of the season gives a maximum regret
of $19000. And the minimum is achieved with 16 generators, with maximum
regret of $16000. This change leads to the purchase of 1 extra generator
compared to the case of part a.
c.
(2 points) What are the advantages and disadvantages of using a model that
minimizes maximum regret in determining how many generators to procure?
This objective ensures that we will never be worse than the maximum regret of
the decision chosen, given that it is minimizing the possible maximum loss in each
case of Q. But it is very sensitive to the inputs: lost profit per day and days with
power outage after a hurricane attack and possible total demand (maximum D).
And this model may be too conservative, because the cost of underage is much
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 Fall '08
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