A local 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: Light Demand Moderate Demand Heavy Demand Probability 0.25 0.45 0.3 Wind-up action $325,000 $190,000 $170,000 Pneumatic action $300,000 $420,000 $400,000 Electrical action -$400,000 $240,000 $800,000 What is the ultimate objective in the use of decision trees to product design? How is this objective accomplished? Draw the decision tree. What is the EMV of each decision alternative? Which action should be selected

A local 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: Light Demand Moderate Demand Heavy Demand Probability 0.25 0.45 0.3 Wind-up action $325,000 $190,000 $170,000 Pneumatic action $300,000 $420,000 $400,000 Electrical action -$400,000 $240,000 $800,000 What is the ultimate objective in the use of decision trees to product design? How is this objective accomplished? Draw the decision tree. What is the EMV of each decision alternative? Which action should be selected

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter19: Pricing Concepts

Section: Chapter Questions

Problem 6DRQ

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The Tinkan Company produces one-pound cans for the Canadian salmon industry. Each year the salmon spawn during a 24-hour period and must be canned immediately. Tinkan has the following agreement with the salmon industry. The company can deliver as many cans as it chooses. Then the salmon are caught. For each can by which Tinkan falls short of the salmon industrys needs, the company pays the industry a 2 penalty. Cans cost Tinkan 1 to produce and are sold by Tinkan for 2 per can. If any cans are left over, they are returned to Tinkan and the company reimburses the industry 2 for each extra can. These extra cans are put in storage for next year. Each year a can is held in storage, a carrying cost equal to 20% of the cans production cost is incurred. It is well known that the number of salmon harvested during a year is strongly related to the number of salmon harvested the previous year. In fact, using past data, Tinkan estimates that the harvest size in year t, Ht (measured in the number of cans required), is related to the harvest size in the previous year, Ht1, by the equation Ht = Ht1et where et is normally distributed with mean 1.02 and standard deviation 0.10. Tinkan plans to use the following production strategy. For some value of x, it produces enough cans at the beginning of year t to bring its inventory up to x+Ht, where Ht is the predicted harvest size in year t. Then it delivers these cans to the salmon industry. For example, if it uses x = 100,000, the predicted harvest size is 500,000 cans, and 80,000 cans are already in inventory, then Tinkan produces and delivers 520,000 cans. Given that the harvest size for the previous year was 550,000 cans, use simulation to help Tinkan develop a production strategy that maximizes its expected profit over the next 20 years. Assume that the company begins year 1 with an initial inventory of 300,000 cans.
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Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web site construction is estimated to be $160,000. Variable processing costs are estimated to be $6 per book. The publisher plans to sell single-user access to the book for $46. Consider the following scenarios: Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Variable Cost/Book $6 $8 $12 $10 $11 Access Price $46 $50 $40 $50 $60 Demand 2,500 1,000 6,000 5,000 2,000 For each of these scenarios, the fixed cost remains $160,000. Use Scenario Manager to generate a summary report that gives the profit for each of these scenarios. d.1 Which scenario yields the highest profit? What is the highest profit? d.2 Which scenario yields the lowest profit? What is the lowest profit?
Cachora Dynamics Corp (CDC) has designed a new integrated circuit that will allow it to enter, if it wishes, the microcomputer field. Otherwise, it can sell its rights for $15 million. If it chooses to build computers, the profitability of this project depends on the company's ability to market them during the first year. Two levels of sales are foreseen as two possible outcomes: selling 10,000 computers in case of low demand, but if it is successful it can sell up to 100,000 units (high demand). The cost of installing the production line is $6 million. The difference between the selling price and the variable cost of each computer is $600. a) Develop a formulation for decision analysis and use the non-probabilistic decision rules: Maximin and Minimax. b) Assume that the probability of high demand (p) is 50% and for low demand (1 - p) is 50%, apply the probabilistic criteria: Maximum expected value, Minimum loss of opportunity. c) Determine the VEIP. d) Carry out a sensitivity…

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	Light Demand	Moderate Demand	Heavy Demand
Probability	0.25	0.45	0.3
Wind-up action	$325,000	$190,000	$170,000
Pneumatic action	$300,000	$420,000	$400,000
Electrical action	-$400,000	$240,000	$800,000