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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?

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?

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
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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?
Transcribed Image Text: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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