Dave Escalona, a DLSL Computer Engineering graduate, is considering the possibility of opening a small computer shop at SM City Lipa, a few blocks from the school. His options are to open a small shop, a medium-sized shop or no shop at all. The market for the computer shop can be good, average or bad. The probabilities for these possibilities are 0.2 for good market, 0.5 for average market and 0.3 for bad market. The net profit or loss for the medium-sized or small shop for the various market conditions are given in the table below. Building no shop also yields no loss and no gain. What do you recommend? Good Market Average Market Bad Market Alternatives P P P Small shop 75,000 25,000 -40,000 Medium-sized shop 100,000 35,000 -60,000 No shop 0 0 0 Probabilities 0.2 0.5 0.3

Dave Escalona, a DLSL Computer Engineering graduate, is considering the possibility of opening a small computer shop at SM City Lipa, a few blocks from the school. His options are to open a small shop, a medium-sized shop or no shop at all. The market for the computer shop can be good, average or bad. The probabilities for these possibilities are 0.2 for good market, 0.5 for average market and 0.3 for bad market. The net profit or loss for the medium-sized or small shop for the various market conditions are given in the table below. Building no shop also yields no loss and no gain. What do you recommend? Good Market Average Market Bad Market Alternatives P P P Small shop 75,000 25,000 -40,000 Medium-sized shop 100,000 35,000 -60,000 No shop 0 0 0 Probabilities 0.2 0.5 0.3

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter10: Introduction To Simulation Modeling

Section10.6: The Effects Of Input Distributions On Results

Problem 28P

See similar textbooks

Similar questions

A manufacturing firm plans to expand the current distribution network. The manager of the firm considers whether to extend a long-term contract with the current company who has done business with the firm in the past and whose distribution system reaches 60% of all potential customers. The second option is to sign a one-year contract with a new distribution company. The new company used to reach only 30% of customers, but they claim that they have invested heavily over the past year in distribution resources and now expect to be able to reach 80% of customers. The manager is not that sure about the new company’s claim and give them about 50% of trust. If the new distributor still covers only 30% in year 1, however, the company can switch back to the familiar old distributor. The manager of the firm wants to develop two-scenario plans: 3-year and 10-year planning horizon. Which distributor should the manager choose for each plan? Show your analysis.
A property development company is planning to build a block of student apartments in Lusaka’s Mass Media area. The company is yet to decide what size of block to build: a small, medium, or large. The payoffs of each size will depend on the demand for student accommodation in the area, which could be low, medium, high. The Developer estimates a 25%, 35%, and 40% chance of low, medium, and high demand, respectively. Below is a payoffs matrix (in K’000) showing the annual payoffs for the decision problem. Size of Block Market Demand Low Medium High Small 400 400 400 Medium 200 500 500 Large -400 300 800 Required: Identify the decision alternatives and uncertain conditions surrounding them? What is the optimal decision if the Developer is conservative? What is the optimal decision if the Developer is a risk taker? What is the optimal decision if the Developer wishes to minimize the Expected Opportunity Loss on the decision to be taken?
The owners of Sweet-Tooth Bakery have determined thatthey need to expand their facility in order to meet their increaseddemand for baked goods. Th e decision is whether to expand nowwith a large facility or expand small with the possibility of havingto expand again in fi ve years.Th e owners have estimated the following chances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Profi ts for each alternative have been estimated as follows:• Large expansion has an estimated profi tability of either$80,000 or $50,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $40,000, assumingdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If the bakeryexpands at this point, the profi tability is to be $50,000.(a) Draw a decision tree showing the decisions, chanceevents, and their probabilities, as well as the profi tabilityof…
Dillon DeMarco is considering opening a small Italian bakery in the nearby mall, close to the Italian section of the city. He has chosen a good location where he believes there will be interest in the bakery. However, Dillon is unsure how much interest there will be and is trying to decide whether to open a small, medium or large shop. It really depends on what the economy is like in the next year whether people are able to spend their money on his Italian delicacies. Based on the latest financial reports, there is a 20%20% probability for a strong economy, 30%30% probability for an average economy and 50%50% probability for a bad economy. The potential payoffs for a small, medium or large shop for a given year are shown in the decision table. Decision Table State of Nature Alternatives Strong Economy Average Economy Bad Economy Small Shop 20,00020,000 18,00018,000 30,00030,000 Medium Shop 45,00045,000 50,00050,000 45,00045,000 Large Shop 85,00085,000 64,00064,000…
A logistics provider plans to have a new warehouse built to handle increasing demands for its services. Although the company is unsure of how much demand there will be, it must decide now on the size (large or small) of the warehouse. Preliminary estimates are that if a small warehouse is built and demand is low, the monthly income will be $700,000. If demand is high, it will have to either expand the facility or lease additional space. Leasing will result in a monthly income of $100,000 while expanding will result in a monthly income of $500,000. If a large warehouse is built and demand is low, monthly income will only be $40,000, while if demand is high, monthly income will be $2 million.a. Construct a tree diagram for this decision.b. Using your tree diagram, identify the choice that would be made using each of the four approaches for decision making under uncertainty
You are deciding between two alternatives to build a facility between two different locations based on the estimated profitability it will generate the first year minus the investment cost. Building in location A will cost $1.1M and there is a 30% chance the workforce will generate $1M in profit, 50% chance it will generate $1.2M in profit and 20% chance it will generate $1.4M in profit. Location B will cost $1.7M and there is a 35% chance the workforce will generate $1.3M in profit, a 40% chance it will generate $1.7M in profit and a 25% it will generate $1.9M in profit. What decision will you recommend based on a decision tree analysis of these alternatives?
The principal at Selena Valley High School, Mr John Dixon, is concerned about the school’s enrolment figures for 2018. Until 2010, the school had experienced strong growth, but since 2013 the enrolment numbers for Year 7 have been less than half of what they were in 2010. The Selena Valley is 50 minutes east of Melbourne and has had a recent influx of young families, but prior to this influx it was a small area with solid growth figures. Selena Valley High School is a coeducational institution with strong links to the local area in terms of apprenticeships and vocational education. The enrolment numbers for 2016 were 378 students from Years 7 to 12. Answer the following questions. 1. What is the major issue Selena Valley High School faces as of 2018 in terms of its customer base? 2. Identify whether each of the following factors is part of the internal or external operating environment of Selena Valley High School, and describe the effect each of these could have on the marketing…
Blueberry, Inc. is a cell phone manufacturer serving the North American market. Current annual demand of their product in North America is 5,000,000. Over the next two years, demand in North America is expected to go up by 50 percent with a probability of 0.80, or go down by 15 percent with a probability of 0.20. Blueberry, Inc. currently has a production facility in N. America with a capacity of 5,000,000 units per year while the variable production cost per phone is $10. Each phone sells for $35. Blueberry, Inc. is contemplating on adding 5,000,000 units of capacity to the plant which will incur an additional fixed cost of $75,000,000. Assume that Blueberry, Inc. uses a discount factor of 12 percent. a. What is the probability that the demand will be more than 10,000,000? b. Will you recommend the option to to Blueberry's VP for Supply Chain? Explain.
MegaJoy Corp. is planning to open a new video arcade. It has narrowed the choices to a large or small arcade.(All costs and revenues in this problem are expressed in thousands of dollars.) The cost of a large arcade is $400, and the cost of a small arcade is $300．It has forecast that the demand will be low with probability 0.3 and high with probability 0.７．If MegaJoy builds a small arcade and the demand is high, then it expects revenues of $540. If MegaJoy builds a large arcade and the demand is low, then it has two alternatives: do nothing and earn revenue of $380, or reduce prices and earn revenues of $450. a. Draw a decision tree for this problem. b. Which choice yields the maximum expected money value?( Show calculation) c. A consulting firm has offered to perform reseach and forecast the demand fo MegaJoy. The firm will charge $8(thouthand) for its services, and it claims that the information will be 100% accurate. Should MegaJoy pay for the consulting services? Justify your…
Swell Productions is sponsoring an outdoor conclave for owners of collectible and classic Fords. The concession stand in the T-Bird area will sell clothing such as T-shirts and official Thunderbird racing jerseys. Jerseys are purchased from Columbia Products for $40 each and are sold during the event for $75 each. If any jerseys are left over, they can be returned to Columbia for a refund of $30 each. Jersey sales depend on the weather, attendance, and other variables. The following table shows the probability of various sales quantities. How many jerseys should Swell Productions order from Columbia for this one-time event?Sales Quantity Probability Quantity Sales Probability100 0.05 400 0.34200 0.11 500 0.11300 0.34 600 0.05
Jeff Winters is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives Jeff is considering: What is the best alternative for Jeff under Maximax?
A group of developers is opening a health club near a new housing development. The health club—which will have exercise and workout equipment, basketball courts, swimming pools, an indoor walking/running track, and tennis courts—is one of the amenities thedevelopers are building to attract new homebuyers. However, they want the health club to at least break even the first year or two. The annual fixed cost for the building, equipment, utilities, staff, and so on is $875,000, and annual variable costs are $200 per member for things like water, towels, laundry, soap, shampoo, and other member services. The membership fee is $225 per month. How many members will the club need to break even? If the club doubles its break-even membership after a year, what will its profit be?