2. A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Moderate Demand Heavy Demand 0.3 S170,000 $400,000 S800,000 Light Demand Probability Wind-up action Pneumatic action Electrical action 0.25 0.45 $325,000 $300,000 -$400,000 $190,000 $420,000 $240,000 a. What is the EMV of each decision alternative? b. Which action should be selected? c. What is the expected value with perfect information? d. What is the expected value of perfect information? e. What is the expected opportunity loss?

2. A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Moderate Demand Heavy Demand 0.3 S170,000 $400,000 S800,000 Light Demand Probability Wind-up action Pneumatic action Electrical action 0.25 0.45 $325,000 $300,000 -$400,000 $190,000 $420,000 $240,000 a. What is the EMV of each decision alternative? b. Which action should be selected? c. What is the expected value with perfect information? d. What is the expected value of perfect information? e. What is the expected opportunity loss?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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