1. Kite ‘N String manufactures old-fashioned diagonal and box kites from high-strength paper and wood. Each diagonal kite nets the company a $3 profit, requires 8 square feet of paper and 5 feet of wood. Each box kite nets $5, requires 6 square feet of paper and 10 feet of wood. Each kite is packaged in similar containers. This week Kite ‘N String has 1500 containers, 10000 square feet of paper and 12000 feet of wood.
a. How many of each type should Kite ‘N String make to maximize profit? What is the maximum profit?
b. Which constraint(s) is/are binding?
c. If an additional 2000 square feet of paper is available, how many of each type to make to maximize profit? What is the maximum profit?
d. Which constraint(s) is/are binding for part 3?
2. Sapphire Weekday is a restaurant chain and it allows three franchising option for investors. The full franchising option charges an investor $100,000 every year but allow the investor to keep all the profit. The half franchising option charges an investor $30,000 and allows the investor to keep 50% of the profit. The fixed franchising option pays an investor $25,000 every year with no profit sharing.
Joan Joyce is considering opening up a Sapphire Weekday franchise in Haleiwa. She estimated that if the business is good, the profit of the restaurant would be about $200,000, but if the business is bad, the profit would only be about $100,000. Forecast indicates that 30% of the time the business will be good and 70% it will be bad. Which would be her best option based on the following criterion?
a. Maximax (aggressive)
b. Maximin (conservative)
c. Minimax regret (opportunity loss)
In addition, construct a decision tree and compute the rollback values to find the best expected value decision.