# Weather teddy for three very different scenarios

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Weather Teddy for three very different scenarios: pessimistic, in which sales would be 10,000 units; most likely, which would be for 20,000 units; and optimistic, which would be for 30,000 units. Even under the best of conditions, making a decision about production and the unknowns that come with that can be a gamble. Order (K) (K-20000)/5102 P(X > K) 15000 1 .3413 18000 .4 .1554 24000 .8 .2119 28000 1.6 0.0548
6 “Decision making under uncertainty occurs when it is unknown which states of nature will occur, and the probability of a state of nature occurring is also unknown" (Black, pg. 708, 2017). There are several different decision making approaches, and SuperFun Toy Company will cover three: pessimistic, most likely, and optimistic. The pessimistic approach is known as maximum criterion. “The assumption is that the worst will happen and attempts must be made to minimize the damage” (Black, pg. 708, 2017). Pessimistic can also be described as worse-case-scenario. The optimistic approach is known as maximax criterion, “in which the decision maker bases action on a notion that the best things will happen” (Black, pg. 707, 2017). This is known as best-case-scenario. In the middle of maximum criterion and maximax criterion we will find the Hurwicz Criterion, and can be considered a most-likely scenario, in which the projected sales will more than likely meet the projected profit. The following is a chart with sales projections for each case scenario: Projected Profit for Order Quantities and Scenarios Order Pessimistic=10000 Most Likely=20000 Optimistic=30000 15000 8x10000-11x5000= \$25000 8x15000= \$120000 8x150000= \$120000 18000 8x10000-11x8000= \$-8000 8x18000 = \$144000 8x18000= \$144000 24000 8x10000-11x140000=\$ -74000 8x20000-11x4000= \$116000 8x24000= \$192000 28000 8x10000-11x18000=\$ -118000 8x20000-11x8000= \$72000 8x28000= \$224000 One of SuperFun's managers felt the profit potential was so great the order quantity should have a 70% chance of meeting demand and only a 30% chance of any stock- outs. What quantity would be ordered under this policy, and what is the projected profit under the three sales scenarios?
7 One of Super Fun’s manager felt that the profit potential was so great that the order