1. Suppose we are considering the question of how much capacity to build in the face of uncertain demand. Assume that the cost is $20per unit of lost sales due to insufficient capacity. Also assume that there is a cost of $7 for each unit of capacity built. The probability ofvarious demand levels is as follows:Demand-X Units01234567Probability of X.05.10.15.20.20.15.10.05a. How many units of capacity should be built to minimize the total cost of providing capacity plus lost sales?b. State a general rule regarding the amount of capacity to build.c. What principle does this problem illustrate?

Find the Given details below: Given details: Demand X Units Probability of X 0 0.05 1 0.1…

Answered: 1. Suppose we are considering the…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 46P

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Software development is an inherently risky and uncertain process. For example, there are many examples of software that couldnt be finished by the scheduled release datebugs still remained and features werent ready. (Many people believe this was the case with Office 2007.) How might you simulate the development of a software product? What random inputs would be required? Which outputs would be of interest? Which measures of the probability distributions of these outputs would be most important?
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Suppose we are considering the question of how much capacity to build in the face of uncertain demand. Assume that the cost is $20 per unit of lost sales due to insufficient capacity. Also assume that there is a cost of $7 for each unit of capacity built. The probability of various demand levels is as follows: Demand—X Units Probability of X 0 .05 1 .10 2 .15 3 .20 4 .20 5 .15 6 .10 7 .05 a. How many units of capacity should be built to minimize the total cost of providing capacity plus lost sales? b. State a…

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