- 20 Marks
PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques
Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.
Question
The local football club has asked for your advice on the number of programmes that should be printed for each game. The cost of printing and production of programmes for each game, as quoted by the local printer, is ₦1,000,000 plus ₦400 per copy. Advertising revenue which has been agreed for the season represents ₦800,000 for each game.
Programmes are sold for ₦150 each. A review of sales during the previous seasons indicates that the following pattern is expected to be repeated during the coming season of 50 games:
| Number of programmes sold | Number of games |
|---|---|
| 10,000 | 5 |
| 20,000 | 20 |
| 30,000 | 15 |
| 40,000 | 10 |
Programmes not sold at the game are sold as waste paper to a paper manufacturer at ₦100 per copy.
Assuming that the four quantities listed are the only possibilities, you are required to:
a. Prepare a payoff table. (6 Marks)
b. Determine the number of programmes that would provide the highest profit if a constant number of programmes were to be printed for each game. (4 Marks)
c. Explain why you should buy 30,000 or 40,000 copies, assuming one of these is the most profitable quantity, despite the fact that the most probable sales are 20,000 copies per game. (2 Marks)
d. Calculate the profit which would arise from a perfect forecast of the numbers of programmes which would be sold at each game. (4 Marks)
e. Discuss the major limitations of the expected value criterion in decision making. (4 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Decision Analysis, Expected Value Criterion, Maximax, Minimax, Payoff table, Profit Calculation
- Level: Level 2
- Topic: Decision-making techniques
- Series: MAY 2023