Answered: What is the probability that the demand…

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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Blueberry, Inc. is a cell phone manufacturer serving the North American market. Current annual demand of their product in North America is 5,000,000. Over the next two years, demand in North America is expected to go up by 50 percent with a probability of 0.80, or go down by 15 percent with a probability of 0.20. Blueberry, Inc. currently has a production facility in N. America with a capacity of 5,000,000 units per year while the variable production cost per phone is $10. Each phone sells for $35.

Blueberry, Inc. is contemplating on adding 5,000,000 units of capacity to the plant which will incur an additional fixed cost of $75,000,000. Assume that Blueberry, Inc. uses a discount factor of 12 percent.

a. What is the probability that the demand will be more than 10,000,000?

b. Will you recommend the option to to Blueberry's VP for Supply Chain? Explain.

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