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Quantitative Techniques III: Quiz 1 (Sections C & D)

Duration: 25 Minutes

Maximum Mars: 2!

"#en $otes% "#en Case Materia% Cose' a#to# xam (Cacuators

ao*e')

$+M,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,-o $o:,,,,,,,,,,,,,,, Sec:,,,,Si.n:,,,,,

Unnati, a student’s club at IIM Indore, is planning to run a cake counter at

the upcoming one-day Management Festival (iLove) to be organized at

the institute on the !th February, "#$% Unnati plans to buy the cakes

&rom a local cake bakery in Indore named Monginice% 'he cost o& buying

one cake &rom Monginice is /!  s% 'he cost o& transportation &rom

Monginice to IIM Indore can be neglected since Unnati ill be using the

institute’s vehicle &or bringing the cakes to the campus% 'he cakes ill be

bought in lump sum &rom the bakery at the start o& the day (* +M) o& the

&estival% 'he &estival ill begin &rom # +M and last till * M% It can be

sa&ely assumed that the cakes bought at the start o& the day ill retain

their &reshness till the end o& the &estival%

Unnati needs to decide ho many cakes it should buy% learly the number

o& cakes to buy depends upon ho much demand Unnati e.pects during

the &estival% 'he demand o& cakes during the &estival is uncertain% Further,the probability distribution o& the demand &or cakes during the &estival

depends upon the price at hich the cakes are sold% Unnati is considering

to possible prices/ !# s%0cake and $# s%0cake% 'he probability

distributions o& the demand o& cakes during the &estival &or the to prices

are given belo/

1elling rice 2 !# s%0cake1elling rice 2 $#

s%0cakeDemand*

 (d)

Probability

P(d)

Demand*

(d)

Probability

P(d)20 0.4 15 0.630 0.6 25 0.4

*Demand is represented in terms of number of cakes.

+ssume that the shel&-li&e o& the cake is one day% 3ence all the unsold

cakes, i& any, at the end o& the &estival ill have to be consumed by the

members thus &etching no money to Unnati%

(Make suitable assumptions wherever necessary to answer the following 4

uestions% +lso assume that decisions are made based on ma.imizing thee.pected monetary value)/

age 1 o& 0

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a) 4evelop and dra the decision tree that describes the decision

problem that Unnati is &acing% (lease ensure that the reader is clear

about all the decisions and outcomes that you intend to sho% 5ou

may make the tree in pencil but rite the 6nal payo7s using anink0ball point pen%) (1!

Mars)

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b) 3o many cakes should Unnati buy and hat should be the selling

price based on the decision tree8

(0 Mars)

c) 4etermine the 9.pected :alue o& er&ect In&ormation (9:I) i& the

cakes are sold at !# s%0cake%

(/ Mars)

d) 4etermine the 9.pected :alue o& er&ect In&ormation (9:I) i& the

cakes are sold at $# s%0cake%

(/ Mars)

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S#ace or -ou.h+''itiona 3or 

age 0 o& 0