Operations Management (Comp. Instructor's Edition)
Operations Management (Comp. Instructor's Edition)
13th Edition
ISBN: 9781259948237
Author: Stevenson
Publisher: MCG
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Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization. 

a)

Expert Solution
Check Mark

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options Motel approved Motel rejected
Renew $500,000 $4,000,000
Relocate $5,000,000 $100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management (Comp. Instructor's Edition), Chapter 5.S, Problem 8P , additional homework tip  1

Slope of renew:

Slope=500,0004,000,000=3,500,000

Equation for renew:

4,000,0003,500,000P

Slope of relocate:

Slope=5,000,000100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,0003,500,000P=100,00+4,900,000P3,500,000P4,900,000P=100,0004,000,0008,400,000P=3,900,000

P=3,900,0008,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion
It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution
Check Mark

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options Motel approved Motel rejected
Renew $500,000 $4,000,000
Relocate $5,000,000 $100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management (Comp. Instructor's Edition), Chapter 5.S, Problem 8P , additional homework tip  2

Slope of renew:

Slope=500,0004,000,000=3,500,000

Equation for renew:

4,000,0003,500,000P

Slope of relocate:

Slope=5,000,000100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,0003,500,000P=100,00+4,900,000P3,500,000P4,900,000P=100,0004,000,0008,400,000P=3,900,000

P=3,900,0008,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution
Check Mark

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options Motel approved Motel rejected
Renew $500,000 $4,000,000
Relocate $5,000,000 $100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

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Chapter 5 Solutions

Operations Management (Comp. Instructor's Edition)

Ch. 5.S - What information is contained in a payoff table?Ch. 5.S - Prob. 7DRQCh. 5.S - Prob. 8DRQCh. 5.S - Under what circumstances is expected monetary...Ch. 5.S - Explain or define each of these terms: a. Laplace...Ch. 5.S - Prob. 11DRQCh. 5.S - Prob. 12DRQCh. 5.S - Prob. 13DRQCh. 5.S - Prob. 1PCh. 5.S - Refer to problem1. Suppose after a certain amount...Ch. 5.S - Refer to Problems 1 and 2 Construct a graph that...Ch. 5.S - Prob. 4PCh. 5.S - Prob. 5PCh. 5.S - The lease of Theme Park, Inc., is about to expire....Ch. 5.S - Prob. 7PCh. 5.S - Prob. 8PCh. 5.S - Prob. 9PCh. 5.S - A manager must decide how many machines of a...Ch. 5.S - Prob. 11PCh. 5.S - Prob. 12PCh. 5.S - Prob. 13PCh. 5.S - Prob. 14PCh. 5.S - Give this payoff table: a. Determine the range of...Ch. 5.S - Prob. 16PCh. 5.S - Repeat all parts of problem 16, assuming the value...Ch. 5.S - Prob. 18PCh. 5 - Prob. 1DRQCh. 5 - Prob. 2DRQCh. 5 - How do long-term and short-term capacity...Ch. 5 - Give an example of a good and a service that...Ch. 5 - Give some example of building flexibility into...Ch. 5 - Why is it important to adopt a big-picture...Ch. 5 - What is meant by capacity in chunks, and why is...Ch. 5 - Prob. 8DRQCh. 5 - How can a systems approach to capacity planning be...Ch. 5 - Prob. 10DRQCh. 5 - Why is it important to match process capabilities...Ch. 5 - Briefly discuss how uncertainty affects capacity...Ch. 5 - Prob. 13DRQCh. 5 - Prob. 14DRQCh. 5 - Prob. 15DRQCh. 5 - Prob. 16DRQCh. 5 - What is the benefit to a business organization of...Ch. 5 - Prob. 1TSCh. 5 - Prob. 2TSCh. 5 - Prob. 3TSCh. 5 - Prob. 1CTECh. 5 - Prob. 2CTECh. 5 - Identify four potential unethical actions or...Ch. 5 - Any increase in efficiency also increases...Ch. 5 - Prob. 1PCh. 5 - In a job shop, effective capacity is only 50...Ch. 5 - A producer of pottery is considering the addition...Ch. 5 - A small firm intends to increase the capacity of a...Ch. 5 - A producer of felt-tip pens has received a...Ch. 5 - A real estate agent is considering changing her...Ch. 5 - A firm plans to begin production of a new small...Ch. 5 - A manager is trying to decide whether to purchase...Ch. 5 - A company manufactures a product using two machine...Ch. 5 - A company must decide which type of machine to...Ch. 5 - Prob. 11PCh. 5 - A manager must decide how many machines of a...Ch. 5 - Prob. 13PCh. 5 - The following diagram shows a four-step process...Ch. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - A new machine will cost 18,000, butt result it...Ch. 5 - Remodelling an office will cost 25,000 and will...Ch. 5 - Prob. 1CQCh. 5 - Prob. 2CQCh. 5 - Prob. 3CQ
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