Priceler Auto Corporation must determine whether or not to give consumers 8% or 11% financing on new cars. If Priceler gives 8% financing during the current month, the probability distribution of...

Priceler Auto Corporation must determine whether or not to give consumers 8% or 11% financing on new cars. If Priceler gives 8% financing during the current month, the probability distribution of sales during the current month will be as shown in Table.

If Priceler gives 11% financing during the current month, the probability distribution of sales during the current month will be as shown in Table.

 “Good” sales represents 400,000 sales per month, “bad” sales represents 300,000 sales per month. For example, if last month’s sales were bad and Priceler gives 8% financing during the current month, there is a .40 chance that sales will be good during the current month. At 11% financing rates, Priceler earns $1,000 per car, and at 8% financing, Priceler earns $800 per car. Priceler’s goal is to maximize expected discounted profit over an infinite horizon (use β = .98).

a Use the policy iteration method to determine an optimal stationary policy.

b Use linear programming to determine an optimal stationary policy.

c Perform two iterations of value iteration.

d Find a policy that maximizes average profit per month.