How do we like it OutcomeObjective How chance affects model Random variables

How do we like it outcomeobjective how chance affects

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How do we like it Outcome/Objective How chance affects model Random variables SCM 421 Lecture 04 26
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Tips 1. Start at outcome (work right to lef) 2. Decompose outcome to variables that determine it directly 3. Influence variables should be independent 4. Ask “What do I need to know to determine ____?” 5. Each variable appears once 6. Don’t draw an arrow from the outcome back to decisions 7. Squares and Triangles should have no arrows coming in. 8. Every circle should have at least one arrow coming in. SCM 421 Lecture 04 27
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Price Setting Example What price do I set to maximize profit? SCM 421 Lecture 04 Profit Revenue s Costs Fixed Cost Variable Cost Unit Cost Elasticity Pric e QTY Sold QTY Sold 28
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Price Setting Example What price to I set to maximize profit? SCM 421 Lecture 04 Profit Revenue s Costs Fixed Cost Variable Cost Unit Cost Elasticity Pric e QTY Sold QTY Sold Inputs: what’s the situation 29
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Price Setting Example What price to I set to maximize profit? SCM 421 Lecture 04 Profit Revenue s Costs Fixed Cost Variable Cost Unit Cost Elasticity Pric e QTY Sold QTY Sold Decision: what you have control over 30
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Price Setting Example What price to I set to maximize profit? SCM 421 Lecture 04 Profit Revenue s Costs Fixed Cost Variable Cost Unit Cost Elasticity Pric e QTY Sold QTY Sold Intermediate outcomes: calculations 31
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Price Setting Example What price to I set to maximize profit? SCM 421 Lecture 04 Profit Revenue s Costs Fixed Cost Variable Cost Unit Cost Elasticity Pric e QTY Sold QTY Sold Outcome: what you care about 32
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Price Setting Example What price to I set to maximize profit? SCM 421 Lecture 04 Profit Revenue s Costs Fixed Cost Variable Cost Unit Cost Elasticity Pric e QTY Sold QTY Sold Double line means stochastic: random or uncertain QTY Sold 33
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