Question

In: Operations Management

Question 2 PT 1: A manager is trying to decide whether to build a small, medium,...

Question 2

PT 1: A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively.

A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $75,000 and can be expanded to medium size to earn $60,000 or to large size to earn $125,000.

A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000.

If a large facility is built and demand is high, earnings are expected to be $220,000. If demand is average for the large facility, the present value is expected to be $125,000; if demand is low, the facility is expected to lost $60,000.

Which alternative is best, according to each of the following decision criterion?

a) Maximin

b) Maximax

c) Minimax regret

PT 2: Draw a decision tree for the three options described in Part 1. What should management do to achieve the highest expected payoff?

Please show work step-by-step. Thank you.

Solutions

Expert Solution

keosha answered 6 months ago
Next > < Previous

Related Solutions

Question 2 A manager is trying to decide whether to build a small, medium, or large...
Question 2 A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000....
A manager is trying to decide whether to build a small, medium, or large facility. Demand...
A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand...
A manager is trying to decide whether to build a small, medium, or large facility. Demand...
A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand...
Management is trying to decide whether or not to build a new factory. They have estimated...
Management is trying to decide whether or not to build a new factory. They have estimated revenues of $90,000 in year one and $70,000 in years two through ten. In 10 years the factory is obsolete. They estimate expenses annually to operate the factory in years 2 through 10 would be $40,000. The cost of the new factory is $310,000 The payments required are $80,000 immediately with the remainder due in one year. The company uses an interest rate of...
(1)A local entertainment establishment, in a small town, is trying to decide whether it should increase...
(1)A local entertainment establishment, in a small town, is trying to decide whether it should increase its weekly advertising expenditure on a campus radio station. The last six weeks of data on monthly revenue and radio advertising expenditure are shown in the table below: Week 1 2 3 4 5 6 Revenue ($000) 3.0 4.0 2.0 4.0 7.0 3.0 Advertising Expenditure ($00) 2.0 3.0 0.0 6.0 8.0 4.0 (a)Write a regression model that relates both variables in the “general” and...
Problem 1 The manager of a construction company must decide whether to build single family homes,...
Problem 1 The manager of a construction company must decide whether to build single family homes, apartments, or condominiums. Profits (in thousands of dollars) are given in the following table and depend on various possible population trends. The probability of a declining population is 0.3, the probability for a stable population is 0.5 and the probability of a growing population is 0.2 Payoff table (in thousands of dollars): Population Declining Stable Growing Single Family Homes 220 80 75 Apartments 85...
The owner of a small deli is trying to decide whether to discontinue selling magazines. He...
The owner of a small deli is trying to decide whether to discontinue selling magazines. He suspects that only 10% of his customers buy a magazine and he thinks that he might be able to use the display space to sell something more profitable. Before making a final decision, he decides that for one day he will keep track of the number of customers that buy a magazine. (a) Explain why this is a binomial experiment. (b) Assuming his suspicion...
F.J. Brewerton Retailers, Inc., must decide whether to build a small or a large facility at...
F.J. Brewerton Retailers, Inc., must decide whether to build a small or a large facility at a new location in Omaha. Demand at the location will either be low or high, with probabilities 0.4 and 0.6, respectively. If Brewerton builds a small facility and demand proves to be high, he then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the reatiler expands the facitliy, the payoff is...
4.07. A taxi company manager is trying to decide whether the use of radial tires instead...
4.07. A taxi company manager is trying to decide whether the use of radial tires instead of regular belted tires improves fuel economy. Randomly selected 12 cars with radial tires yielded in a sample mean of 5.7 and sample standard deviation of 0.4, another randomly selected 15 cars with belted tires yielded a sample mean of 5.2 and a standard deviation of 0.8. Assume the populations to be approximately normal with equal variances. State and conclude your hypothesis at the...
Booked Solid, a small independent bookstore in Bradford is trying to decide whether to discontinue selling...
Booked Solid, a small independent bookstore in Bradford is trying to decide whether to discontinue selling magazines. The owner suspects that only 7% of the customers buy a magazine and thinks that she might be able to use the display space to sell something more profitable. Before making a final decision, she decides that for one day he'll keep track of the number of customers and whether or not they buy a magazine. What is the probability that exactly 5...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT