Bundle: Modern Business Statistics with Microsoft Office Excel, Loose-Leaf Version, 6th + MindTap Business Statistics, 2 terms (12 months) Printed Access Card
6th Edition
ISBN: 9781337589383
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: Cengage Learning
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Chapter 20.2, Problem 5E
The distance from Potsdam to larger markets and limited air service have hindered the town in attracting new industry. Air Express, a major overnight delivery service, is considering establishing a regional distribution center in Potsdam. But Air Express will not establish the center unless the length of the runway at the local airport is increased. Another candidate for new development is Diagnostic Research, Inc. (DRI), a leading producer of medical testing equipment. DRI is considering building a new manufacturing plant. Increasing the length of the runway is not a requirement for DRI, but the planning commission feels that doing so will help convince DRI to locate its new plant in Potsdam. Assuming that the town lengthens the runway, the Potsdam planning commission believes that the probabilities shown in the following table are applicable.
| DRI Plant | No DRI Plant | |
| Air Express Center | .30 | .10 |
| No Air Express Center | .40 | .20 |
For instance, the
The estimated annual revenue to the town, after deducting the cost of lengthening the runway, is as follows:
| DRI Plant | No DRI Plant | |
| Air Express Center | $600,000 | $150,000 |
| No Air Express Center | $250,000 | −$200,000 |
If the runway expansion project is not conducted, the planning commission assesses the probability that DRI will locate its new plant in Potsdam at .6; in this case, the estimated annual revenue to the town will be $450,000. If the runway expansion project is not conducted and DRI does not locate in Potsdam, the annual revenue will be $0 since no cost will have been incurred and no revenues will be forthcoming.
- a. What is the decision to be made, what is the chance
event , and what is the consequence? - b. Compute the expected annual revenue associated with the decision alternative to lengthen the runway.
- c. Compute the expected annual revenue associated with the decision alternative to not lengthen the runway.
- d. Should the town elect to lengthen the runway? Explain.
- e. Suppose that the probabilities associated with lengthening the runway were as follows:
| DRI Plant | No DRI Plant | |
| Air Express Center | .40 | .10 |
| No Air Express Center | .30 | .20 |
What effect, if any, would this change in the probabilities have on the recommended decision?
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Chapter 20 Solutions
Bundle: Modern Business Statistics with Microsoft Office Excel, Loose-Leaf Version, 6th + MindTap Business Statistics, 2 terms (12 months) Printed Access Card
Ch. 20.2 - Prob. 1ECh. 20.2 - Prob. 2ECh. 20.2 - 3. Hudson Corporation is considering three options...Ch. 20.2 - 4. Myrtle Air Express decided to offer direct...Ch. 20.2 - 5. The distance from Potsdam to larger markets and...Ch. 20.2 - 6. Seneca Hill Winery recently purchased land for...Ch. 20.2 - 7. The Lake Placid Town Council has decided to...Ch. 20.3 - Consider a variation of the PDC decision tree...Ch. 20.3 - 9. A real estate investor has the opportunity to...Ch. 20.3 - Dante Development Corporation is considering...
Ch. 20.3 - 11. Hale’s TV Productions is considering producing...Ch. 20.3 - 12. Martin’s Service Station is considering...Ch. 20.3 - 13. Lawson’s Department Store faces a buying...Ch. 20.4 - Prob. 14ECh. 20.4 - 15. In the following profit payoff table for a...Ch. 20.4 - 16. To save on expenses, Rona and Jerry agreed to...Ch. 20.4 - 17. The Gorman Manufacturing Company must decide...Ch. 20 - Prob. 18SECh. 20 - 19. Warren Lloyd is interested in leasing a new...Ch. 20 - Hemmingway, Inc., is considering a $50 million...Ch. 20 - 21. Embassy Publishing Company received a...Ch. 20 - Case Problem Lawsuit Defense Strategy
John...
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