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The EMV for option a is $

The EMV for option a is $

Practical Management Science
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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MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study. If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 100,000 units at $550 each, with a probability of 0.60 and a 0.40 probability of 75,000 at $550. If, however, he uses the value analysis team (option b), the firm expects sales of 75,000 units at $750, with a probability of 0.70 and a 0.30 probability of 70,000 units at $750. Value engineering, at a cost of $100,000, is only used in option b. Which option has the highest expected monetary value (EMV)? The EMV for option a is $ and the EMV for option b is $ Therefore, option has the highest expected monetary value. (Enter your responses as integers.) a
Transcribed Image Text:MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study. If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 100,000 units at $550 each, with a probability of 0.60 and a 0.40 probability of 75,000 at $550. If, however, he uses the value analysis team (option b), the firm expects sales of 75,000 units at $750, with a probability of 0.70 and a 0.30 probability of 70,000 units at $750. Value engineering, at a cost of $100,000, is only used in option b. Which option has the highest expected monetary value (EMV)? The EMV for option a is $ and the EMV for option b is $ Therefore, option has the highest expected monetary value. (Enter your responses as integers.) a
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Expected monitory value indicating the value expecting from each decision while considering the probability of occurring each of the state of nature. The above given question indicating two decision alternative with two different state of nature. We can identify the expected monitory value of each decision like given below.

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