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. Probability Wind-up action Pneumatic action Electrical action Light Demand 0.25 $170,000 $300,000 -$300,000 Moderate Demand 0.45 $205,000 $300,000 $210,000 (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? Heavy Demand 0.3 $150,000 $220,000 $300,000
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. Probability Wind-up action Pneumatic action Electrical action Light Demand 0.25 $170,000 $300,000 -$300,000 Moderate Demand 0.45 $205,000 $300,000 $210,000 (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? Heavy Demand 0.3 $150,000 $220,000 $300,000
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.5: Multistage Decision Problems
Problem 19P
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