1. Zhen Manufacturing is considering the introduction of a family of new products. Long- term demand for the product group is somewhat predictable, so the manufacturer must be concerned with the risk of choosing a process that is inappropriate. Chen Zhen is VP of operations. He can choose among batch manufacturing or custom manufacturing, or he can invest in group technology. Chen won't be able to forecast demand accurately until after he makes the process choice. Demand will be classified into four compartments: poor, fair, good, and excellent. The table below indicates the payoffs (profits) associated with each process/demand combination, as well as the probabilities of each long-term demand level. PoOR FAIR GOOD EXCELLENT Probability Batch .2 $1,300,000 .1 .4 .3 -$ 200,000 $ 100,000 -$1,000,000 $1,000,000 $ 300,000 -$ 500,000 $1,200,000 $ 700,000 $ 500,000 $ 800,000 $2,000,000 Custom Group technology a) Based on expected value, what choice offers the greatest gain? b) What would Chen Zhen be willing to pay for a forecast that would accurately determine the level of demand in the future?

1. Zhen Manufacturing is considering the introduction of a family of new products. Long- term demand for the product group is somewhat predictable, so the manufacturer must be concerned with the risk of choosing a process that is inappropriate. Chen Zhen is VP of operations. He can choose among batch manufacturing or custom manufacturing, or he can invest in group technology. Chen won't be able to forecast demand accurately until after he makes the process choice. Demand will be classified into four compartments: poor, fair, good, and excellent. The table below indicates the payoffs (profits) associated with each process/demand combination, as well as the probabilities of each long-term demand level. PoOR FAIR GOOD EXCELLENT Probability Batch .2 $1,300,000 .1 .4 .3 -$ 200,000 $ 100,000 -$1,000,000 $1,000,000 $ 300,000 -$ 500,000 $1,200,000 $ 700,000 $ 500,000 $ 800,000 $2,000,000 Custom Group technology a) Based on expected value, what choice offers the greatest gain? b) What would Chen Zhen be willing to pay for a forecast that would accurately determine the level of demand in the future?

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Description: 1. Zhen Manufacturing is considering the introduction of a family of new products. Long-term demand for the product group is somewhat predictable, so the manufacturer mustbe concerned with the risk of choosing a process that is inappropriate. Chen Z

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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1. Zhen Manufacturing is considering the introduction of a family of new products. Long-
term demand for the product group is somewhat predictable, so the manufacturer must
be concerned with the risk of choosing a process that is inappropriate. Chen Zhen is VP
of operations. He can choose among batch manufacturing or custom manufacturing, or
he can invest in group technology. Chen won't be able to forecast demand accurately
until after he makes the process choice. Demand will be classified into four
compartments: poor, fair, good, and excellent. The table below indicates the payoffs
(profits) associated with each process/demand combination, as well as the probabilities
of each long-term demand level.
PoOR
FAIR
GOOD
EXCELLENT
Probability
Batch
.2
$1,300,000
.1
.4
.3
-$ 200,000
$ 100,000
-$1,000,000
$1,000,000
$ 300,000
-$ 500,000
$1,200,000
$ 700,000
$ 500,000
$ 800,000
$2,000,000
Custom
Group technology
a) Based on expected value, what choice offers the greatest gain?
b) What would Chen Zhen be willing to pay for a forecast that would accurately
determine the level of demand in the future?

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