QUESTION TWO In line with its environment-friendly advocacy, the Makati City Police Department is considering replacing its fleet of gasoline-powered patrol cars with electric cars. The manufacturer of the electric cars claims that the city will experience significant savings over the life of the fleet if it converts, but the city government has its doubts. If the manufacturer is correct, the city will save P35 million. If the new technology is faulty, as some critics suggest, the conversion will cost the city P15 million. A third possibility is that neither situation will occur and the city will break-even with the conversion. According to a recently completed consultant's report, the respective probabilities of these 3 events are 0.4, 0.3, and 0.3. Furthermore, the city was offered a pilot program that if implemented would indicate the potential cost or savings in the conversion. The program involves renting 3 electric cars for 3 months and running then under normal conditions. The cost to the city of this pilot program would be P3.5 million. The city's consultant believes that the results of the pilot program would be significant but not conclusive. The following table reflects the compilation of probabilities base on the experience of other cities. Given that a conversion Savings A Pilot Program will Indicate No Change A Loss
QUESTION TWO In line with its environment-friendly advocacy, the Makati City Police Department is considering replacing its fleet of gasoline-powered patrol cars with electric cars. The manufacturer of the electric cars claims that the city will experience significant savings over the life of the fleet if it converts, but the city government has its doubts. If the manufacturer is correct, the city will save P35 million. If the new technology is faulty, as some critics suggest, the conversion will cost the city P15 million. A third possibility is that neither situation will occur and the city will break-even with the conversion. According to a recently completed consultant's report, the respective probabilities of these 3 events are 0.4, 0.3, and 0.3. Furthermore, the city was offered a pilot program that if implemented would indicate the potential cost or savings in the conversion. The program involves renting 3 electric cars for 3 months and running then under normal conditions. The cost to the city of this pilot program would be P3.5 million. The city's consultant believes that the results of the pilot program would be significant but not conclusive. The following table reflects the compilation of probabilities base on the experience of other cities. Given that a conversion Savings A Pilot Program will Indicate No Change A Loss
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Chapter1: Combinatorial Analysis
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Transcribed Image Text:QUESTION TWO
In line with its environment-friendly advocacy, the Makati City Police Department is considering replacing its
fleet of gasoline-powered patrol cars with electric cars. The manufacturer of the electric cars claims that the
city will experience significant savings over the life of the fleet if it converts, but the city government has its
doubts. If the manufacturer is correct, the city will save P35 million. If the new technology is faulty, as some
critics suggest, the conversion will cost the city P15 million. A third possibility is that neither situation will
occur and the city will break-even with the conversion. According to a recently completed consultant's report,
the respective probabilities of these 3 events are 0.4, 0.3, and 0.3. Furthermore, the city was offered a pilot
program that if implemented would indicate the potential cost or savings in the conversion. The program
involves renting 3 electric cars for 3 months and running then under normal conditions. The cost to the city of
this pilot program would be P3.5 million. The city's consultant believes that the results of the pilot program
would be significant but not conclusive. The following table reflects the compilation of probabilities base on
the experience of other cities.
Given that a conversion
A Pilot Program will Indicate
No Change
0.2
Savings
0.5
Saves Money
Breaks Even
0.3
Loses Money
0.2
a) What is the expected payoff in million pesos to Makati Police Department if it will replace all of their fleets
by electric cars? Blank 1
b) What is the probability of breaks even given Savings? Answer in 5 decimal places. Blank 2
c) What is the probability of Loses money given No Change? Answer in 5 decimal places. Blank 3
d) What is the probability of Saves money given A Loss? Answer in 1 decimal place. Blank 4
0.5
0.3
e) Determine the probability of Savings. Answer in 2 decimal places. Blank 5
f) Determine the probability of No Change? Answer in 2 decimal places. Blank 6
g) Determine the probability of A Loss. Answer in 1 decimal place. Blank 7
h) What is the expected payoff in million pesos to the Makati Police Department if management will
implement the pilot program? Answer in 6 decimal places. Blank 8
i) What will be your recommendation to the Makati Police Department? Answer Do not change
fleet or Change fleet. Blank 9
A Loss
0.3
0.2
0.4
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