Question 1

Suppose a manufacturing plant is considering three options for expansion. The first one is to expand into a new plant (large), the second to add on third-shift to the daily schedule (medium), and the third to do nothing (small). There are three possibilities for demand. These are high, medium, and low with each having an equal likelihood of occurring. Suppose that the profits for the expansion plans are as follows (respective to high, medium, low demand). The large expansion profits are $40000, $20000, -$30000, the medium expansion choice $30000, $15000, $12000 and the small expansion choice $9000, $6000, $3000. Calculate the EMV of each choice. Which of the expansion plans should the manager choose?

Accepted Answer

The answer of Suppose a manufacturing plant is considering three...

Question 2

Dexter's Shell owns his own Waffle-Cone business and lives 50 kms from a beach resort. The sale of Waffle-Cones is highly dependent upon his location and upon the weather. At the resort, he will profit $180 per day in fair weather, $40 per day in foul weather. At home, he will profit $110 in fair weather, $70 in foul weather. Assume that on any particular day, the weather service suggests a 40% chance of fair weather.
a. Construct Dexter's payoff table.
b. What decision is recommended by the expected value criterion?
c. What is the EVPI?

Accepted Answer

The answer of Dexter's Shell owns his own Waffle-Cone business...

Question 3

Suppose a manufacturing plant is considering three options for expansion. The first one is to expand into a new plant (large), the second to add on third-shift to the daily schedule (medium), and the third to do nothing (small). There are three possibilities for demand. These are high, medium, and low with each having an equal likelihood of occurring. Suppose that the profits for the expansion plans are as follows (respective to high, medium, low demand). The large expansion profits are $90000, $20000, -$15000, the medium expansion choice $30000, $20000, $6000 and the small expansion choice $12000, $9000, $7000. Calculate the EMV of each choice. Which of the expansion plans should the manager choose?

Accepted Answer

The answer of Suppose a manufacturing plant is considering three...

Question 4

There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $80,000, $65,000, and - $25,000 under these states of nature, respectively, what is the EMV of the factory?

Accepted Answer

The answer of There are three equally likely states of...

Question 5

Janice Boston owns a Sno-Cone business and lives 30 kms from a beach resort. The sale of Sno-Cones is highly dependent upon his location and upon the weather. At the resort, he will profit $120 per day in fair weather, $30 per day in foul weather. At home, he will profit $80 in fair weather, $40 in foul weather. Assume that on any particular day, the weather service suggests a 70% chance of fair weather.
a. Construct Janice's payoff table.
b. What decision is recommended by the expected value criterion?
c. What is the EVPI?

Accepted Answer

The answer of Janice Boston owns a Sno-Cone business and...

Question 6

A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows.
 $$\begin{array} { | l | r | r | r | } 
\hline \text { Profit } &  { \text { Light } } & \text { Medium } & { \text { Heavy } } \
\hline \text { Probability } & 0.18 & 0.52 & 0.3 \
\hline \text { Wind-up } & 70 & 20 & 120 \
\hline \text { Pneumatic } & 80 & 90 & 100 \
\hline \text { Electrical } & 50 & 150 & 30 \
\hline
\end{array}$$ a. What is the EMV of each decision alternative?
b. Which action should be selected?
c. What is the expected value with perfect information?
d. What is the expected value of perfect information?

Accepted Answer

The answer of A toy manufacturer has three different mechanisms...

Question 7

A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows.
 $$\begin{array} { | l | r | r | r | } 
\hline \text { Profit } & { \text { Light } } & \text { Medium } &{ \text { Heavy } } \
\hline \text { Probability } & 0.23 & 0.37 & 0.4 \
\hline \text { Wind-up } & 1000 & 700 & 1150 \
\hline \text { Pneumatic } & 500 & 800 & 1350 \
\hline \text { Electrical } & 700 & 900 & 1100 \
\hline
\end{array}$$ a. What is the EMV of each decision alternative?
b. Which action should be selected?
c. What is the expected value with perfect information?
d. What is the expected value of perfect information?

Accepted Answer

The answer of A toy manufacturer has three different mechanisms...

Quiz 18: Decision-Making Tools

There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $80,000, $65,000, and - $25,000 under these states of nature, respectively, what is the EMV of the factory?