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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)/5102P(X > K)150001.341318000.4.155424000.8.2119280001.60.0548
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 forOrder Quantities and ScenariosOrderPessimistic=10000Most Likely=20000Optimistic=30000150008x10000-11x5000= $250008x15000= $1200008x150000= $120000180008x10000-11x8000= $-80008x18000 = $1440008x18000= $144000240008x10000-11x140000=$ -740008x20000-11x4000= $1160008x24000= $192000280008x10000-11x18000=$ -1180008x20000-11x8000= $720008x28000= $224000One of SuperFun's managers felt the profit potential was so great the order quantityshould 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 projectedprofit under the three sales scenarios?
7One of Super Fun’s manager felt that the profit potential was so great that the order