Mick Karra is the manager of MCZ Drilling Products, which produces a variety of specialty Valves for oil equipment. Recent activity in the oil fields has caused demand to increase drastically, and a decision has been made to open a new manufacturing facility. Three locations are being considered and the size of the facility would not be the same in each location. Thus, overtime might be necessary at times. The following table gives the total monthly cost (in $1,000s) for each possible location under each demand possibility. The probabilities for the demand levels have been determined to be 20% for low demand, 30% for medium demand, and 50% for high demand. Demand is low Demand is medium Demand is High Ardmore, Ok 85 110 150 Sweetwater, Tx 90 100 120 lake Charles, LA 110 120 130 (a) Which location would be selected based on the optimistic criterion? (b) Which location would be selected based on the pessimistic criterion? (f) Which location would minimize the expected opportunity loss? (g) What is the expected value of perfect information in thissituation?
Mick Karra is the manager of MCZ Drilling Products, which produces a variety of specialty Valves for oil equipment. Recent activity in the oil fields has caused demand to increase drastically, and a decision has been made to open a new manufacturing facility. Three locations are being considered and the size of the facility would not be the same in each location. Thus, overtime might be necessary at times. The following table gives the total monthly cost (in $1,000s) for each possible location under each demand possibility. The probabilities for the demand levels have been determined to be 20% for low demand, 30% for medium demand, and 50% for high demand. Demand is low Demand is medium Demand is High Ardmore, Ok 85 110 150 Sweetwater, Tx 90 100 120 lake Charles, LA 110 120 130 (a) Which location would be selected based on the optimistic criterion? (b) Which location would be selected based on the pessimistic criterion? (f) Which location would minimize the expected opportunity loss? (g) What is the expected value of perfect information in thissituation?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Mick Karra is the manager of MCZ Drilling Products, which produces a variety of specialty Valves for oil equipment. Recent activity in the oil fields has caused demand to increase drastically, and a decision has been made to open a new manufacturing facility. Three locations are being considered and the size of the facility would not be the same in each location. Thus, overtime might be necessary at times. The following table gives the total monthly cost (in $1,000s) for each possible location under each demand possibility. The probabilities for the demand levels have been determined to be 20% for low demand, 30% for medium demand, and 50% for high demand.
| Demand is low | Demand is medium | Demand is High | |
| Ardmore, Ok | 85 | 110 | 150 |
| Sweetwater, Tx | 90 | 100 | 120 |
| lake Charles, LA | 110 | 120 | 130 |
(a) Which location would be selected based on the optimistic criterion?
(b) Which location would be selected based on the pessimistic criterion?
(f) Which location would minimize the expected opportunity loss?
(g) What is the expected value of perfect information in thissituation?
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