Practical Management Science
5th Edition
ISBN: 9781305250901
Author: Wayne L. Winston, S. Christian Albright
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 9.3, Problem 4P
Summary Introduction
To determine: How large would be the fixed cost to make the unrestraint option to be the best option.
Introduction: The variation between the present value of the
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
The fixed cost of $6 million in the Acme problem is evidently not large enough to make Acme abandon the product at the current time. How large would the fixed cost need to be to make the abandon option the bestoption? Explain how the decision tree, especially the version in Figure 9.5, answers this question easily.
A market research firm has agreed, for a fee, to analyse the demand for the start-up's
product and issue a report predicting whether the new start-up will be a success or a
failure before the venture capitalist can make his investment decision.
a) Assuming the VC is risk-neutral, what is the maximum amount it should
pay for the market research? Assume that the market research's
prediction is correct.
b) What are the risk profiles associated with the venture capitalist's
investment decision when he uses the market research with perfect
predictions? How are these risk profiles compared to the risk profiles
when the venture capitalist does not use the market research? Why?
Wired & Plugged specializes in manufacturing modern electronic components. It also builds equipment that produces the components. The marketing and production directors advised the president about a proposed manufacturing facility in the form of a payoff table as shown.
Decision
Profits($)
Strong Marked
Fair Market
Poor Market
Large-sized facility
Medium-sized facility
Small- sized facility
No facility
450,000
2500,000
350,000
0
220,000
150,000
150,000
0
-310,000
-250,000
-80,000
0
What decision should be made using the LaPlace criterion?
Chapter 9 Solutions
Practical Management Science
Ch. 9.2 - Prob. 1PCh. 9.2 - Prob. 2PCh. 9.2 - Prob. 3PCh. 9.3 - Prob. 4PCh. 9.3 - Prob. 5PCh. 9.3 - Prob. 6PCh. 9.3 - Prob. 7PCh. 9.4 - Explain in some detail how the PrecisionTree...Ch. 9.4 - Prob. 9PCh. 9.4 - Prob. 10P
Ch. 9.5 - Prob. 11PCh. 9.5 - Prob. 12PCh. 9.5 - Prob. 13PCh. 9.5 - Prob. 17PCh. 9.5 - Prob. 18PCh. 9.5 - Prob. 19PCh. 9.5 - Prob. 21PCh. 9.5 - The model in Example 9.3 has only two market...Ch. 9.6 - Prob. 26PCh. 9.6 - Prob. 27PCh. 9.6 - Prob. 28PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 34PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 46PCh. 9 - Prob. 48PCh. 9 - Prob. 53PCh. 9 - Prob. 67PCh. 9 - Prob. 68PCh. 9 - Prob. 69PCh. 9 - Prob. 70PCh. 9 - Prob. 71PCh. 9 - Prob. 72PCh. 9 - Prob. 73PCh. 9 - Prob. 74PCh. 9 - Prob. 75PCh. 9 - Prob. 76PCh. 9 - Prob. 77P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
- You are entrusted with deciding whether to make or buy software. The make decision has a setup cost of $15,000 and a monthly maintenance cost of $1,200. A vendor will sell the software for an initial cost of $11,400 and a monthly cost of $3,000. For how many months must the company use this software to support a make decision?arrow_forwardHow does efficient frontier analysis (EFA) differ from other forms of complex risk assessment techniques? What limitations might an analyst encounter through the use of EFA? How can efficient frontier analysis results be communicated and utilized with non-mathematical decision makers?arrow_forwardYou are planning to rent a car for a one-week vacation. You have the option of buying an insurance that costs $80 dollars for a week. If you do not purchase insurance, you would be personally liable for any damages. You anticipate that a minor collision will cost $2,000, whereas a major accident might cost $16,000 in repairs. Develop a payoff table for this situation. What decision should you make using each strategy? Aggressive (Optimistic) Conservative (Pessimistic) Opportunity Loss You have recently read in a magazine that that the probability of a major accident is 0.05% and that the probability of a minor collision is 0.18%. Construct a decision tree and identify the best expected value decision.arrow_forward
- A small parts manufacturer has just engineered a new product for the automotive industry. In order to produce the part the company can expand existing facilities, acquire a competitor, or subcontract production. The company believes the product will either experience high market demand, an average market demand or low market demand. The following table summarizes the company's decision situation (profits in thousands of dollars). Alternative 00 540 300 240 O 100 30% High Dem. 1,000 Expand Facilities Acquire Competitor Subcontract Production What is the Expected Value of Perfect Information for the small parts manufacturer? 800 Ave. Dem. 200 600 -300 30% 100 Low Dem. -1,000 -400 0arrow_forwardA company faces a decision with respect to a product (codenamed M997) developed by oneof its research laboratories. It has to decide whether to proceed to test market M997 orwhether to drop it completely. It is estimated that test marketing will cost £100K.Past experience indicates that only 30% of products are successful in test market.If m997 is successful at the test market stage then the company faces a further decisionrelating to the size of plant to set up to produce m997. A small plant will cost £150K to buildand produce 2000 units a year whilst a large plant will cost £250K to build but produce 4000units a year.The marketing department have estimated that there is a 40% chance that the competitionwill respond with a similar product and that the price per unit sold (in £) will be as follows(assuming all production sold): Large plant Small plant Respond to competition 20 35 Not respond to competition 50 65 Assuming that the life of the market for M997 is estimated to…arrow_forwardCome up with a decision using each of the different criteria under conditions of uncertainty using the table below. The payoff values are expressed as LOSSES and alpha = 0.5 1. What is the best of the best payoff value? 2. Which decision alternative has the best of the worst payoff value? 3. Which decision alternative has the minimum payoff value of the maximum regret? 4. Which realism approach decision alternative has the maximum payoff? 5. What is the best equally likely decision to take?arrow_forward
- Come up with a decision using each of the different criteria under conditions of uncertainty using the table below. The payoff values are expressed as LOSSES and alpha = 0.5 * (a) What is the best of the best payoff value? (b) Which decision alternative has the best of the worst payoff value? (c) Which decision alternative has the minimum payoff value of the maximum regret? (d) Which realism approach decision alternative has the maximum payoff?(e) What is the best equally likely decision to take?arrow_forward3 (a) You are the author of a new novel. You can choose to self-publish by making your own website to with the help of a local developer for a cost of $15,000, or you can sell them via an existing publisher. There is a 10% chance the novel will be trending and sell 100,000 copies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at distribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. If you choose to self-publish, you can produce and distribute copies for $12 each and must sell at a cheaper price of $18 to attract buyers (but keep all of the profit). (i) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. (ii) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)? (b) Suppose you have the opportunity to hire a local literary critic to review your novel. Based on past surveys,…arrow_forwardA company is considering three vendors for purchasing a CRM system: Delphi Inc., CRM International, and Murray Analytics. The costs of the system are expected to depend on the length of time required to implement the system, which depends on such factors as the amount of customization required, integration with legacy systems, resistance to change, and so on. Each vendor has different expertise in handling these things, which affect the cost. The costs (in millions of $) are shown below for short, medium, and long implementation durations. Use the Excel template Decision Analysis to identify what vendor to select. Decision Alternative Delphi Inc. CRM International Murray Analytics Decision Alternative Delphi Inc. CRM International Murray Analytics $ $ $ Fill in the table below for maximum and minimum costs under each alternative. Carry out an analysis considering costs as negative numbers. Round your answers to the nearest cent. Maximum Short $4.25 $4.90 $5.00 Minimum Medium $5.55…arrow_forward
- Explain the difference between risk and ambiguity.How might decision making differ for a risky versus anambiguous situation?arrow_forwardComerstone Solutions, LLC. is deciding between developing an advanced thought-activated software, or a basic voice-activated software. Since the thought-activated software is complicated, it only has a 30% chance of actually going through to a successful launch, but would generate revenues of $50million if launched. The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million. Assume that an unsuccessful product launch will generate no revenue. The complicated technology costs 10million, whereas the simple technology costs 2million. (However...) Suppose Cornerstone Solutions, LLC. learns that the complicated technology can be made more stable with a few tweaks increasing the price to 15.5 million and increasing the probability of a launch to 50%. Given the new costs and probabilities of launch for the complicated software, which technology would the firm rather invest in now? O The simple voice-activated software O The…arrow_forwardYou are considering three investment alternatives for some spare cash: Old Reliable Corporation stock (A1), Fly-By-Nite Air Cargo Company stock (A2), and a federally insured savings certificate (A3). You expect the economy will either "boom" (N1) or “bust” (N2), and you estimate that a boom is more likely (p1 = 0.6) than a bust (p2 = 0.4). Outcomes for the three alternatives are expected to be (1) $2000 in boom or $500 in bust for ORC; (2) $6000 in boom but $-5000 (loss) in bust for FBN: and (3) $1200 for the certificate in either case. Set up a payoff table (decision matrix) for this problem and show which of it Alternative maximizes expected value.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,