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2. 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. Moderate Demand Heavy Demand 0.3 S170,000 $400,000 S800,000 Light Demand Probability Wind-up action Pneumatic action Electrical action 0.25 0.45 $325,000 $300,000 -$400,000 $190,000 $420,000 $240,000 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? e. What is the expected opportunity loss?

2. 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. Moderate Demand Heavy Demand 0.3 S170,000 $400,000 S800,000 Light Demand Probability Wind-up action Pneumatic action Electrical action 0.25 0.45 $325,000 $300,000 -$400,000 $190,000 $420,000 $240,000 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? e. What is the expected opportunity loss?

Marketing
Marketing
20th Edition
ISBN:9780357033791
Author:Pride, William M
Publisher:Pride, William M
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 6DRQ
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This is just a follow-up question for the Operation Research Problem Solving, ANSWER question D and E only. 

2. 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. Moderate Demand Heavy Demand 0.45 $190,000 $420,000 $240,000 Light Demand Probability Wind-up action Pneumatic action Electrical action 0.25 $325,000 $300,000 -$400,000 0.3 S170,000 $400,000 $800,000 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? e. What is the expected opportunity loss?
Transcribed Image Text:2. 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. Moderate Demand Heavy Demand 0.45 $190,000 $420,000 $240,000 Light Demand Probability Wind-up action Pneumatic action Electrical action 0.25 $325,000 $300,000 -$400,000 0.3 S170,000 $400,000 $800,000 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? e. What is the expected opportunity loss?
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