EBK ENGINEERING ECONOMY
EBK ENGINEERING ECONOMY
17th Edition
ISBN: 9780134838229
Author: Sullivan
Publisher: PEARSON
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Chapter 12, Problem 7P
To determine

Calculate the expected annual cost.

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Kipling Equipment Inc. must decide to produce either a face mask or a face shield to alleviate the spread of a quickly evolving coronavirus. The face mask is disposable and developing it could potentially lead to a profit of $230,000 if competition is high or a profit of $515,000 if competition is low. The face shield, on the other hand, is reusable and has the potential of generating a fixed profit of $438,000 irrespective of high or low competition. The probability of high competition is 43% while that of low competition is 57%. Part A a) What is the expected monetary value of the optimal decision? $ b) Based on expected monetary value, what should the Kipling do? Select an answer c) What is the upper bound on the amount Kipling should pay for additional information? $
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Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: a. If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? b. Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
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