You have two design options for your new line of high-resolution monitors for Computer-Aided Design (CAD) workstations. The production run is for 110,000 units. Design option A has a .90 probability of yielding 65 good monitors per 100 and a .10 probability of yielding 70 good monitors per 100. This design will cost $1,000,000. Design option B has a .80 probability of yielding 65 good units per 100 and a .20 probability of yielding 60 good units per 100. This design will cost $1,350,000. Good or bad, each monitor will cost $75. Each good monitor will sell for $150. Bad monitors are destroyed and have no salvage value. We ignore any disposal costs in this problem. Demonstrate how decision trees can be used in order to choose the design option based on the above situation. Calculate the expected monetary value (EMV) of each option and determine which option you will propose.
You have two design options for your new line of high-resolution monitors for Computer-Aided Design (CAD) workstations. The production run is for 110,000 units.
Design option A has a .90 probability of yielding 65 good monitors per 100 and a .10 probability of yielding 70 good monitors per 100.
This design will cost $1,000,000.
Design option B has a .80 probability of yielding 65 good units per 100 and a .20 probability of yielding 60 good units per 100.
This design will cost $1,350,000.
Good or bad, each monitor will cost $75. Each good monitor will sell for $150.
Bad monitors are destroyed and have no salvage value. We ignore any disposal costs in this problem.
Demonstrate how decision trees can be used in order to choose the design option based on the above situation. Calculate the expected monetary value (EMV) of each option and determine which option you will propose.
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