Calculate minimal expected amount, Econometrics

A store is known for is bargains. The store has the habit of lowering the price of its bargains each day, to ensure that articles are sold fast. Assume that you spot an item on Wednesday (there is only one of it left) that costs 30 Euro and that you would like to buy for a friend as present for Saturday. You know that the price will be lowered to 25 Euro on Thursday when the item is not sold, and to l0 Euro on Friday. You estimate that the probability that the item will be available on Thursday equals 0.7. You further estimate that assuming that it is still available on Friday when it was available on Thursday equals 0.6. You are sure that the item will no longer be available on Saturday. When you postpone your decision to buy the item to either Thursday or Friday, and the item is sold, you will buy another item of 40 Euro as present for Saturday.

a) Formulate the problem as stochastic dynamic programming problem. Specify phases, states, decisions and the optimal value function.
b) Draw the decision tree for this problem.
c) Give the recurrence relations for the optimal value function.
d) What is the minimal expected amount that you will pay for your present, and what is the optimal decision on Wednesday?


Posted Date: 3/5/2013 8:06:47 AM | Location : United States

Related Discussions:- Calculate minimal expected amount, Assignment Help, Ask Question on Calculate minimal expected amount, Get Answer, Expert's Help, Calculate minimal expected amount Discussions

Write discussion on Calculate minimal expected amount
Your posts are moderated
Related Questions
Brie?y describe the preference reversal phenomenon, and explain how Grether and Plott's (1979) experimental design deals with anchoring as one of its possible causes. Using a dr

what are the uses of correlation in economics?

Females, it is said, make 70 cents to the dollar in the United States. To investigate this phenomenon, you collect data on weekly earnings from 1,744 individuals, 850 females and

#question.Suppose that you have 150 observations on production (yt) and investment (it), and you have estimated the following ADL(3,2) model: (1 – 0.5L – 0.1L2 – 0.05L3)yt = 0.7 +

Choose Y and X variables to model on the Household and the Environment Survey 2006. Using Ox software to write a program to do estimation, and then write a report based on the an

what is indirect utility function?

How can a person achieve his goal for development?Explain it with 5 examples.

exceptional supply

reasons of lags