Jack and James run a small bicycle shop. They must order bicycles for the coming season. Orders for the bicycles must be placed in quantities of twenty (20). The cost per bicycle is $70 if they order 20, $67 if they order 40, $65 if they order 60, and $64 if they order 80. The bicycles will be sold for $100 each. Any bicycles left over at the end of the season can be sold (for certain) at $45 each. If Jack and James run out of bicycles during the season, then they will suffer a loss of “goodwill” among their customers. They estimate this goodwill loss to be $5 per customer who was unable to buy a bicycle. Jack and James estimate that the demand for bicycles this season will be 10, 30, 50, or 70 bicycles with probabilities of 0.2, 0.4, 0.3, and 0.1 respectively. Draw a payoff matrix for the given data and find the best action under discussed decision criteria i.e Maximax, Maximin, Loss regret, Hurwiz’z and expected value criteria.
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