The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. How many dozen T-shirts should you purchase based on minimizing the expected opportunity loss?
A)1
B)2
C)3

Question

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown.   How many dozen T-shirts should you purchase based on minimizing the expected opportunity loss?
A)1 
B)2 
C)3

Quizplus · Accepted Answer

To minimize the expected opportunity loss, we need to calculate the expected profit for each possible decision and select the option with the lowest expected loss. Using the opportunity loss table provided, we can calculate the expected profit for each decision as follows:

Decision 1: E(profit) = (0.2 x $120) + (0.6 x $60) + (0.2 x $20) = $56
Decision 2: E(profit) = (0.4 x $100) + (0.4 x $40) + (0.2 x $0) = $48
Decision 3: E(profit) = (0.6 x $80) + (0.3 x $20) + (0.1 x $0) = $50
Decision 4: E(profit) = (0.8 x $60) + (0.2 x $0) = $48

Therefore, the best decision is to purchase 2 dozen T-shirts, which has the lowest expected loss of $48.

The National Sales Manager for "I Colored This" (ICT)T-Shirts Provides