A manager is trying to decide whether to buy one machineor two. If only one is purchased and demand proves to beexcessive, the second machine can be purchased later. Somesales will be lost, however, because the lead time for produc-ing this type of machine is six months. In addition, the costper machine will be lower if both are purchased at the sametime. The probability of low demand is estimated to be 0.20.The after-tax net present value of the benefits from purchas-ing the two machines together is $90,000 if demand is lowand $180,000 if demand is high.If one machine is purchased and demand is low, the netpresent value is $120,000. If demand is high, the managerhas three options. Doing nothing has a net present value of$120,000; subcontracting, $160,000; and buying the secondmachine, $140,000.a. Draw a decision tree for this problem.b. How many machines should the company buy initially?What is the expected payoff for this alternative?
Customary Pricing
There are various types of pricing strategies followed in the market. They are psychological pricing, odd pricing, free onboard pricing, customary pricing, prestige pricing, dual pricing, ruling pricing, negotiated pricing, mark up pricing, etc. each one can be explained as follows:
Multiple Unit Pricing
“Multiple-unit pricing is a practice where a company offers consumers a lower than unit price if a specified number of units are purchased.”
A manager is trying to decide whether to buy one machine
or two. If only one is purchased and demand proves to be
excessive, the second machine can be purchased later. Some
sales will be lost, however, because the lead time for produc-
ing this type of machine is six months. In addition, the cost
per machine will be lower if both are purchased at the same
time. The probability of low demand is estimated to be 0.20.
The after-tax
ing the two machines together is $90,000 if demand is low
and $180,000 if demand is high.
If one machine is purchased and demand is low, the net
present value is $120,000. If demand is high, the manager
has three options. Doing nothing has a net present value of
$120,000; subcontracting, $160,000; and buying the second
machine, $140,000.
a. Draw a decision tree for this problem.
b. How many machines should the company buy initially?
What is the expected payoff for this alternative?
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