
a)
To draw: A decision tree diagram.
Introduction:
Decision tree is one of the methods used in decision-making process. It would graphically represent the available alternatives and states of nature. It would also mention the payoffs and probabilities of the alternatives. It helps to choose the best alternative that would give the best result among the alternatives.
a)

Answer to Problem 4P
Explanation of Solution
Given information:
If small facility is build:
When demand is lower, then
When demand is higher, then two alternatives are as follows:
First alternative: To maintain and NPV is $50,000
Second alternative: To expand and NPV is $450,000
If large facility is build:
Demand is high: NPV is $800,000
Demand is low: NPV is -$10,000
Decision tree diagram:
Explanation:
Here we see that there are (1) two alternative decision small facility to build or to large facility to build. First alternative is to build small facility and there is also two sub parts, first is low demand and second is high demand. In high demand there are (2) two alternative decisions which has also two parts; first has to be maintained and other is expand.
Decision is based on right to left in decisions. We can see that expand have higher NPV that other alternatives.
Calculate the decision alternative payoffs:
It is given that probability of low demand is 40%, and high demand is 60%.
Small facility to build:
If low demand:
Therefore, the payoff of low demand is $160,000.
If high demand:
Therefore, the payoff of high demand is $270,000.
Large facility to build:
If low demand:
If high demand:
Calculate the expected value of each alternative:
Small facility to build:
Large facility to build
Here, we see that highest expected value is for larger facility to build so this alternative need to select and small facility alternative have double slash.
b)
To determine: To calculate expected value of perfect information.
Expected value of perfect information: It is the rate that a person is willing to pay to gain access to get perfect information. A common area which uses expected value of perfect information is the healthcare economy. This value tries to evaluate the expected cost of the uncertainty, which can be interpreted as the expected value of perfect information.
b)

Answer to Problem 4P
Explanation of Solution
Explanation
Calculation of expected value of perfect information:
Step 1: Calculate the expected value with perfection information or Expected payoff under certainty:
Therefore, expected value with perfection information is $640,000.
Step 2: Calculation of the expected value of perfect information:
Hence, the expected value of perfect information is $164,000.
c)
To determine: The range over each alternative that are best in term of the value of P.
Introduction: Decision table to evaluate the range over each alternative. Decision table is formats or visual representations were data is expressed arranged, determined and calculated to make an effective decision making. A decision table is a tabular representation that is used to analyze decision alternatives and states of nature.
c)

Explanation of Solution
Decision table is based on each alternative which are relative to P (low) and graph of low demand and high demand:
Alternative | High Demand | Low Demand |
Build Small | $450,000 | 400,000 |
Build Large | $800,000 | -$10,000.00 |
From the above graph we can obtain that optimal value of P (low) over each alternative are, for low value of P (low) here we decide to build large facilities because we are getting higher expected value. For high value of P (low) we decided to build small facility because we are getting higher expected value.
Calculate the exact value of range:
Equations:
Build Small: 450,000 – 50,000P (slope = 400,000 – 450,000)
Build Large:800,000 – 810,000P (slope = -10,000 – 800,000)
Find the intersection between the two lines:
Optimal ranges:
Build Large: P (Low) = 0 to < .4605
Build Small: P (Low) > .4605 to 1.00
Want to see more full solutions like this?
Chapter 5 Solutions
Operations Management (Comp. Instructor's Edition)
- Eligibility testing is an disparate impact validation method none of the above a method to validate promotions and progressive discipline activity a test an employee administers to ensure that the potential employee is capable and qualified to perform the requirements of the positionarrow_forwardA no-strike pledge by a union in a collective bargaining agreement is given in return for management’s agreement to: a grievance procedure a union shop a wage increase a fringe benefit increase binding arbitration of grievancesarrow_forwardWhich is the major OD technique that is used for increasing the communication, cooperation, and cohesiveness of work units? Leadership analysis Developing objectives Groupthink Strategic Planning team Buildingarrow_forward
- An American multinational firm usually is less than fully successful in adapting itself to local practices in each country because: American managers are often ignorant of local conditions None of the above management direction may be centralized in the home office All of the above Foreign subsidiaries often have American managersarrow_forwardWhen salary increases are based on inputs, or performance, companies are following: agency theory equality theory equity theory compliance theory need theoryarrow_forwardThe most frequently used techniques for measuring job satisfaction involves Direct observation Questionnaires Interviews Psychological testsarrow_forward
- Which of the following is not an advantage of on-the-job training? Transfer is less difficult Transfer is less difficult The training is inexpensive Any organizational member can be the trainer without preparation It is relatively easy to use this methodarrow_forwardDiversimilarity is characterized by A systematic and dual emphasis and appreciation of both the differences and the similarities that members of an organization have Everyone is either the same or different Attempting to change the values of minority groups to make them conform with the views of the dominant group Emotional intelligence of everyone involvedarrow_forwardCultural environment includes all of the following components except: religious beliefs values/ideologies corporate structure education/human capitalarrow_forward
- Search firms _____________. All of the above place consultants onsite for their clients are outsourced to search and place full-time employees for their clients place contract employees for the clientsarrow_forwardWhich of the following accurately describe the functions of the NLRB: most cases are settled before they reach the board the five member board is required to make a ruling in all cases the board rules only in cases involving interpretation of the Constitution the five member board is required to make a ruling in most casesarrow_forwardThe best way to manage diversity within an organization depends upon three factors: The degree of pressure for diversity, the type of diversity in question, and managerial attitudes about diversity The skills of top management, the culture itself, and change orientation Acceptance of diversity, change orientation, and employee intelligence Managerial attitudes about diversity, their skills, and their willingness to change the organizationarrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage LearningMarketingMarketingISBN:9780357033791Author:Pride, William MPublisher:South Western Educational Publishing

