Gold Star computer limited is currently working on a new process to manufacture the computers. The cost of developing new process is BDT 23,55,720. The probability of successful development is projected to be 65%. If the development is unsuccessful, the project will be terminated. The manufacturer has to decide whether to begin manufacturing the computer on a new process or remain manufacturing on the current process. The company assumes that, If the demand for the computer is high, the incremental revenue for new computer will be BDT 74,30,823, and the incremental revenue for the current computer will be BDT 59,21,325. If the demand is low, the incremental revenue for the new product will be BDT 51,50,905, and the incremental revenue for the current product will be BDT 46,50,060. All of these incremental revenue values are gross figures, i.e., before subtracting the BDT 23,55,720 development cost and BDT 12,40,070 for the current manufacturing process. The probability of high demand is estimated as 55%, and of low demand as 45%. Now make a decision on the basis of risk analysis techniques and Minimax regrate decision rule
Addition Rule of Probability
It simply refers to the likelihood of an event taking place whenever the occurrence of an event is uncertain. The probability of a single event can be calculated by dividing the number of successful trials of that event by the total number of trials.
Expected Value
When a large number of trials are performed for any random variable ‘X’, the predicted result is most likely the mean of all the outcomes for the random variable and it is known as expected value also known as expectation. The expected value, also known as the expectation, is denoted by: E(X).
Probability Distributions
Understanding probability is necessary to know the probability distributions. In statistics, probability is how the uncertainty of an event is measured. This event can be anything. The most common examples include tossing a coin, rolling a die, or choosing a card. Each of these events has multiple possibilities. Every such possibility is measured with the help of probability. To be more precise, the probability is used for calculating the occurrence of events that may or may not happen. Probability does not give sure results. Unless the probability of any event is 1, the different outcomes may or may not happen in real life, regardless of how less or how more their probability is.
Basic Probability
The simple definition of probability it is a chance of the occurrence of an event. It is defined in numerical form and the probability value is between 0 to 1. The probability value 0 indicates that there is no chance of that event occurring and the probability value 1 indicates that the event will occur. Sum of the probability value must be 1. The probability value is never a negative number. If it happens, then recheck the calculation.
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