QuestionA buyer at Best Buy electronics is trying to decide how many… A buyer at Best Buy electronics is trying to decide how many wearable technology devices to purchase from a company called “Muse” for the upcoming Winter Holiday Season. The problem being is that the product is apparently high in demand and it will take 2.5 months to fill any orders placed with the company. Most importantly, the product has no known demand characteristics because it is has never previously been sold at Best Buy. According to company purchasing procedures, Best Buy has a policy to execute purchasing decisions by looking at demand profiles for products with similar technology characteristics. The buyer has been requested to make the purchasing decision for the new product using the following demand characteristics of similar innovative products sold by Best Buy: Demand: 100 200 300 400 500 600 700 800 900 1000 Probability 0.050 0.075 0.100 0.150 0.200 0.175 0.100 0.075 0.050 0.025 Best Buy has negotiated the cost of the device for $185 per unit and intends to sell the product for $295. There is the possibility that the wearable technology device will not be successful and any remaining unsold units after the holiday season will be liquidated using a blow-out sale in the Spring for $115 each. The buyer also knows that in previous years when demand for new electronic products exceeded supply, there was a cost to business through loss of future sales, good will, etc. Assuming the demand and costing information above is accurate, answer the following questions by developing a spreadsheet model using Excel (do not use paper and pencil): a. Construct the payoff table. Use an estimated additional cost (loss) of $20.00 per device whenever demand exceeds supply. b. What decision should be made according to the maximax decision rule? c. What decision should be made according to the maximin decision rule? d. What decision should be made according to the EMV decision rule? e. What decision should be made according to the minimax regret decision rule? f. What decision should be made according to the EOL decision rule? g. How much should the buyer be willing to pay to obtain a demand forecast that is 100% accurate?MathStatistics and Probability
