Concept explainers
(a)
Interpretation: The company has decided to build a second plant, as full capacity has been achieved by the present manufacturing unit. The second plant may be large or small, located at a nearby area and the demand may be low or high, while
(b)
Interpretation: The company has decided to build a second plant, as full capacity has been achieved by the present manufacturing unit. The second plant may be large or small, located at a nearby area and the demand may be low or high, while
Concept Introduction: The measure of likelihood that an event will happen, in a random experiment is called probability.
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Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
- II. + James Scott is considering the possibility of opening a small outfit shop on Sta. Maria District, a few blocks from St. Green Ville College. She has located on a mall that attracts students. To open a small shop, medium sized shop, or no shop at all are her options. The market can be good, average, or bad. The probabilities for these three possibilities are 30% for good market, 50% for an average market, and 20% for bad market. The profit or loss for the said market conditions are given in the table below; ALTERNATIVE Small Shop Medium Sized Shop No Shop GOOD 150,000 200,000 0 AVERAGE 50,000 70,000 0 a) Calculate the Expected Value of Perfect Information (EVPI) b) What do you recommend? BAD -80,000 -120,000 0arrow_forward#6) A group of medical professionals is considering constructing a private clinic. If a patient demand for the clinic is high, the physicians could realize a net profit of $120,000. If the demand is low, they could lose $55,000. Of course, they do not have to proceed at all, in which case there is no cost. In the absence of any market data, the best the physicians can guess is that there is a 50-50 chance the demand would be high. a) Create a decision tree. b) What should the medical professionals do? What is the payoff? c) The physicians have been approached by a market research firm that offers to perform a study of the market at a fee of $5,000. The market researchers claim that their experience enables them to use Bayes’ theorem to make the following statements of probability: -probability of high demand given a positive survey result = 0.82 -probability of low demand given a positive survey result = 0.18 -probability of high demand given a negative survey result = 0.11…arrow_forwardc. From the following decision tree, develop a payoff table and calculate: * Maximax, Minimax regret, Maximin, and EMV. ORs. 50,000 Good conditions (0.60) Poor conditions (0.40) -O Rs. 30,000 Apartment Building Good conditions (0.60) O Rs. 100,000 Office building Poor conditions (0.40) Purchase ORs -40,000 Warchouse Good conditions (0.60) Rs.30, 000 Poor conditions (0.40) O Rs. 10,000arrow_forward
- The Hard to Beat Bakery is deciding whether to buy or repair an existing oven thatthey have been using for over 8 years. If they elect to repair, it will cost the entity$950,000 and either of two outcomes is likely: 1. A 20% probability it will perform okay and generate revenues of$10,000,000, or 2. An 80% chance that it will be partially restored and generate revenue of$2,000,000. If on the other hand however, they purchase a new oven, they can either buy animported oven for $3,500,000 or they can buy a locally made one for $2,200,000.If the elect to purchase the imported oven, production will earn them revenues of$15,550,000, but if they buy the locally made oven, there is a 70% likelihood thatit perform as expected and generate revenues of $12,000,000; and a 30% chancethat it will not and generate revenues of $6,000,000. Required: 1. Draw a decision tree of this problem and determine the expected value.2. Advise the management of the Bakery on how to proceed.3. Briefly discuss the…arrow_forwardA manager is going to purchase new processing equipment and must decide on the number ofspare parts to order with the new equipment. The spares cost $200 each, and any unused spareswill have an expected salvage value of $50 each. The probability of usage can be described by thisdistribution:Number 0 1 2 3Probability .10 .50 .25 .15If a part fails and a spare is not available, two days will be needed to obtain a replacementand install it. The cost for idle equipment is $500 per day. What quantity of spares should beordered?a. Use the ratio method.b. Use the tabular method (see Table 13.3).arrow_forwardHoward Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of 0.6 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product, Weiss's expected profit is $40,000; if Weiss adds an assembly line and ATR follows suit, Weiss still expects $10,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000; if ATR does compete for this market, Weiss expects a loss of $100,000. What is the best decision based on expected monetary value (EMV)? What are the EMV and the expected value of perfect information (EVPI)? The best decision is to select the new plant with the EMV of $320,000 and the EVPI is $364,000. The best decision is to select the assembly line with the EMV of $180,000 and the EVPI is $66,000. The best decision is to select the assembly line…arrow_forward
- A manufacturing plant has reached full capacity. The company must build a second plant—either small or large—at a nearby location. The demand is likely to be high or low. The probability of low demand is 0.3. If demand is low, the large plant has a present value of $5 million and the small plant, apresent value of $8 million. If demand is high, the large plant pays off with a present value of $18 million, and the small plant with a present value of only $10 million. However, the small plant can be expanded later if demand proves to be high for a present value of $14 million.a. Draw a decision tree for this problem.b. What should management do to achieve the highest expected payoff?arrow_forwardPayoff Table Decision Alternatives Demand Low Medium High Small, d1 400 500 600 Medium, d2 100 600 800 Large, d3 -300 400 1200 1). If nothing is known about the demand probabilities, what are the recommended decision using the Maximax (optimistic), Maximin (pessimistic) and Equally Likely? 2). If P(low) = 0.20, P(medium) = 0.35, and P(high) = 0.45. What is the recommended decision using the expected monetary value approach? 3). What is the expected value of perfect information (EVPI)?arrow_forwardHoward Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of 0.40 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product, Weiss's expected profit is $40,000; if Weiss adds an assembly line and ATR follows suit, Weiss still expects $20,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000; if ATR does compete for this market, Weiss expects a loss of $100,000. a) Expected value for the Add Assembly Line option = $ (enter your answer as a whole number).arrow_forward
- An oil company must decide whether or not to drill an oil well in a particular area that they already own. The decision maker (DM) believes that the area could be dry , reasonably good or a bonanza. See data in the table which shows the gross revenues for the oil well that is found. Decision Dry (D) Reasonably good(G) Bonanza(B) Drill $0 $85 $200 m Abandon $0 $0 $0 Probability 0.3 0.3 0.4 Drilling costs 40M. The company can take a series of seismic soundings ( at a cost of 12M) to determine the underlying geological structure. The results will be either “no structure”, “open structure or “closed structure”. The reliability of the testing company is as follows that is, this reflects their historical performance. Note that if the test result is “no structure” the company can sell the land to a developer for 50 m, otherwise (for the other results) it can abandon the drilling idea at no benefit to itself.…arrow_forwardA shop will decide to sell either product A or B or C in the coming season. Demand in that season can be high, average or low. Payoff table below shows the related returns in TL. You will create your own data for Product B row:)) States of nature Alternatives High demand Average demand Low demand Product A 2000 1000 -200 Product B Product C 1000 500 400 a. What would be the decision according to Minimax Regret? b. What is the maximum amount of money the company should pay for perfect information? (Assign probabilities for high, average and low demand)arrow_forwardA decision maker has prepared the following payoff table. States of Nature Alternative High Low Buy 75 -10 Rent 70 30 Lease 50 35 Prior Probability 0.5 0.5 Using Baye's Decision Rule, what is the best decision and the expected payoff? (Round your answer to 1 decimal place.) Best decision Рayofarrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,