Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
12th Edition
ISBN: 9780134741062
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
bartleby

Concept explainers

Question
Book Icon
Chapter A, Problem 24P

(a)

Summary Introduction

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 0.3 is the probability for low demand. The small plant will have a present value of $8 million and large plant

  $5 million , for low demands. The small plant payoff with a present value of $10 million and the large plant at $18 million for a high demand scenario. The small plant could be expanded for a present value of $14 million , if the demand works out be high. A decision tree for this problem needs to be drawn.Concept Introduction: The measure of likelihood that an event will happen, in a random experiment is called probability.

(b)

Summary Introduction

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 0.3 is the probability for low demand. The small plant will have a present value of $8 million and large plant $5 million , for low demands. The small plant payoff with a present value of $10 million and the large plant at $18 million for a high demand scenario. The small plant could be expanded for a present value of $14 million , if the demand works out be high. In order to achieve the highest expected payoff, the procedure done by the management needs to be derived.

Concept Introduction: The measure of likelihood that an event will happen, in a random experiment is called probability.

Blurred answer
Students have asked these similar questions
A firm must decide whether to construct a small, medium, or large stamping plant. A consultant’sreport indicates a .20 probability that demand will be low and an .80 probability that demand willbe high.If the firm builds a small facility and demand turns out to be low, the net present value will be$42 million. If demand turns out to be high, the firm can either subcontract and realize the net present value of $42 million or expand greatly for a net present value of $48 million.The firm could build a medium-size facility as a hedge: If demand turns out to be low, its netpresent value is estimated at $22 million; if demand turns out to be high, the firm could do nothingand realize a net present value of $46 million, or it could expand and realize a net present value of$50 million.If the firm builds a large facility and demand is low, the net present value will be – $20 million,whereas high demand will result in a net present value of $72 million.a. Analyze this problem using a decision…
The owner of a small business is considering three options: buying a computer, leasing a computer, or getting along without a computer. Based on the information obtained from the firm's accountant, the following payoff table (in terms of net. profit) was developed: State of Nature State # 1 State # 2 State # 3 Alternative (S1) (S2) (S3) A1 6. A2 АЗ 4 Based on the probability for each state of nature in previous question(the probability for S1 to happen equals the probability of S2; the probability for S2 to happen is three times of S3). What is the EVPI? O 5.29 O Can't be computed with the given information O 114 O 642
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 Drill $0 Abandon $0 Probability 0.3 Dry (D) Seismic Results No structure(N) Open(0) Closed (C) 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. Reasonably good(G) $85 $0 0.3 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. Dry(d) 0.7 0.2 Bonanza(B) 0.1 $200 m SO 0.4 Conditional…
Knowledge Booster
Background pattern image
Operations Management
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
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,