Solution the decision tree is so gerber should act

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: A Set up the decision tree and find the optimal decision for Gerber. Solution. The decision tree is: So Gerber should act proactively. Part 3.B In the worst case scenario, Gerber would be compensated for some of their losses. How much would Gerber need to be compensated so that Gerber would act passively? Solution. The decision tree is: E [CSF P ] = .5(.25(0) + .75(−2)) + .5(.8(X − 10) + .2(.5)) = −4.7 + .4X, E [CSF P ] = −4.7 + .4X = −0.16875; Therefore, X = $11.329 million. 5 6 MIT OpenCourseWare 15.053 Optimization Methods in Management Science Spring 2013 For information about citing these materials or our Terms of Use, visit:
View Full Document

Ask a homework question - tutors are online