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50 views2 pages

Q 7

Uploaded by

jem
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

L et's solve this problem step by step.

We need to create a payoff table to determine the


optimal production quantity for Asra and Co Ltd.

Given:
- Selling price per drum: ₹100
- Cost per drum: ₹55
- Demand frequencies:
- 2000 drums: 8 months
- 3000 drums: 16 months
- 6000 drums: 12 months

Step 1: Calculate the probabilities for each demand level.


Total months = 8 + 16 + 12 = 36

Probability of demand for 2000 drums, P (2000) =


8 2
=
36 9

Probability of demand for 3000 drums, P (3000) =


16 4
=
36 9

Probability of demand for 6000 drums, P (6000) = 12

36
=
1

Step 2: Create a payoff table for each production quantity and demand level.

\multicolumn3c

Production Demand

Quantity 2000 3000 6000

2000 90000 90000 90000

3000 65000 135000 135000

6000 −30000 40000 270000

Explanation:
- If 2000 drums are produced, the profit is 2000 × ₹ 100 - 2000 × ₹ 55 = ₹90000, regardless of
the demand.
- If 3000 drums are produced and the demand is 2000, the profit is 2000 × ₹ 100 - 3000 × ₹ 55
= ₹65000.
- If 3000 drums are produced and the demand is 3000 or 6000, the profit is 3000 × ₹ 100 -
3000 × ₹ 55 = ₹135000.

- If 6000 drums are produced and the demand is 2000, the profit is 2000 × ₹ 100 -
6000 × ₹ 55 = -₹30000 aloss.

- If 6000 drums are produced and the demand is 3000, the profit is 3000 × ₹ 100 -
6000 × ₹ 55 = ₹40000.

- If 6000 drums are produced and the demand is 6000, the profit is 6000 × ₹ 100 -
6000 × ₹ 55 = ₹270000.
Step 3: Calculate the expected profit for each production quantity.

Expected profit for 2000 drums:


2 4 1
E(2000) = 90000 × + 90000 × + 90000 × = 90000
9 9 3

Expected profit for 3000 drums:


2 4 1
E(3000) = 65000 × + 135000 × + 135000 × = 110000
9 9 3

Expected profit for 6000 drums:


2 4 1
E(6000) = −30000 × + 40000 × + 270000 × = 96666.67
9 9 3

Therefore, the optimal production quantity for Asra and Co Ltd is 3000 drums, as it yields
the highest expected profit of ₹110000.

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