The president of AS Electronics, Inc., has two design options for his new line of cathode ray tubes (CRTs). The forecast for the CRTs is 100,000 units annually. The company will make 100,000 units using one of the two designs at a cost of $75 each. Good CRTs can be sold, but bad CRTs are destroyed and have no salvage value. (Ignore any disposal cost issues for the moment.) The company can sell good CRTs for $150. Design option A has a .90 probability of yielding 59 good CRTs per 100 and a .10 probability of yielding 64 good CRTs per 100. The design will cost $1,000,000. Design option B has a .80 probability of yielding 64 good CRTs per 100 and a .20 probability of yielding 59 good CRTs per 100. The design will cost $1,350,000. Draw and label the decision tree (for two design options with two possible yields each). Calculate the first-year payoff for each option. [Payoff = Annual Revenues – annual manufacturing costs – design costs] Calculate the expected payoff for each of the two design options. Determine which option the president should choose.
The president of AS Electronics, Inc., has two design options for his new line of cathode ray tubes (CRTs). The forecast for the CRTs is 100,000 units annually. The company will make 100,000 units using one of the two designs at a cost of $75 each. Good CRTs can be sold, but bad CRTs are destroyed and have no salvage value. (Ignore any disposal cost issues for the moment.) The company can sell good CRTs for $150. Design option A has a .90 probability of yielding 59 good CRTs per 100 and a .10 probability of yielding 64 good CRTs per 100. The design will cost $1,000,000. Design option B has a .80 probability of yielding 64 good CRTs per 100 and a .20 probability of yielding 59 good CRTs per 100. The design will cost $1,350,000. Draw and label the decision tree (for two design options with two possible yields each). Calculate the first-year payoff for each option. [Payoff = Annual Revenues – annual manufacturing costs – design costs] Calculate the expected payoff for each of the two design options. Determine which option the president should choose.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 30P
Related questions
Question
The president of AS Electronics, Inc., has two design options for his new line of cathode ray tubes (CRTs). The
Design option A has a .90 probability of yielding 59 good CRTs per 100 and a .10 probability of yielding 64 good CRTs per 100. The design will cost $1,000,000.
Design option B has a .80 probability of yielding 64 good CRTs per 100 and a .20 probability of yielding 59 good CRTs per 100. The design will cost $1,350,000.
- Draw and label the decision tree (for two design options with two possible yields each).
- Calculate the first-year payoff for each option. [Payoff = Annual Revenues – annual
manufacturing costs – design costs] - Calculate the expected payoff for each of the two design options.
- Determine which option the president should choose.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning