Business Analytics
Assumptions: Assume Beyond Armor is risk-neutral
Use the Generalized Analytics Procedure (GAP) to set up your problem as follows:
Define your model in words
Identify the firm’s/manager’s objective function in words
Answer: Maximize Profit.
Identify the decision variables in words
Answer: Quantity Ordered
Identify the random variables (risk sources)
Answer: Demand.
Identify the constraints (optional here)
Answer: Order Quantity
Formulate your model mathematically
Define the decision variables
Answer:
Quantity ordered can be 5,000, 10,000 and 15,000 sweatshirts
Define the random variables (risk sources). What is the probability distribution of those random variables?
Answer:
Demand can be 5,000, 10,000 and 15,000 with equal probabilities.
Define objective function in terms of decision variables and random variables.
Answer:
Profit = quantity sold*unit revenue – quantity ordered* unit cost
Define the constraints (optional here)
Answer:
Order quantity can be 5,000, 10,000 and 15,000 sweatshirts
(Not 2,000 or 4,000 or any other number)
