A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: States of Nature Weather related cost per hour Alternatives Cold cost/day Mild cost/day Warm cost/day Machine 1 $50 $40 $45 Machine 2 $45 $42 $47 Machine 3 $40 $35 $54 Machine 4 $60 $25 $48 Machine 5 $45 $40 $45 Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather. What is the EVPI? $5.8 $1.6 $6.6 $3.2

A plant manager considers the operational cost per hour of five machine alternatives. The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm. The following table represents the operations cost per hour for each alternative-state of nature combination: States of Nature Weather related cost per hour Alternatives Cold cost/day Mild cost/day Warm cost/day Machine 1 $50 $40 $45 Machine 2 $45 $42 $47 Machine 3 $40 $35 $54 Machine 4 $60 $25 $48 Machine 5 $45 $40 $45 Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather. What is the EVPI? $5.8 $1.6 $6.6 $3.2

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section11.4: Marketing Models

Problem 30P: Seas Beginning sells clothing by mail order. An important question is when to strike a customer from...

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Seas Beginning sells clothing by mail order. An important question is when to strike a customer from the companys mailing list. At present, the company strikes a customer from its mailing list if a customer fails to order from six consecutive catalogs. The company wants to know whether striking a customer from its list after a customer fails to order from four consecutive catalogs results in a higher profit per customer. The following data are available: If a customer placed an order the last time she received a catalog, then there is a 20% chance she will order from the next catalog. If a customer last placed an order one catalog ago, there is a 16% chance she will order from the next catalog she receives. If a customer last placed an order two catalogs ago, there is a 12% chance she will order from the next catalog she receives. If a customer last placed an order three catalogs ago, there is an 8% chance she will order from the next catalog she receives. If a customer last placed an order four catalogs ago, there is a 4% chance she will order from the next catalog she receives. If a customer last placed an order five catalogs ago, there is a 2% chance she will order from the next catalog she receives. It costs 2 to send a catalog, and the average profit per order is 30. Assume a customer has just placed an order. To maximize expected profit per customer, would Seas Beginning make more money canceling such a customer after six nonorders or four nonorders?
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States of Nature
Weather related cost per hour
Alternatives	Cold cost/day	Mild cost/day	Warm cost/day
Machine 1	$50	$40	$45
Machine 2	$45	$42	$47
Machine 3	$40	$35	$54
Machine 4	$60	$25	$48
Machine 5	$45	$40	$45