STATISTICS F/BUSINESS+ECONOMICS-TEXT
13th Edition
ISBN: 9781305881884
Author: Anderson
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 21.2, Problem 5E
The distance from Potsdam to larger markets and limited air service have hindered the town in attracting new industry. Air Express, a major overnight delivery service, is considering establishing a regional distribution center in Potsdam. But Air Express will not establish the center unless the length of the runway at the local airport is increased. Another candidate for new development is Diagnostic Research, Inc. (DRI), a leading producer of medical testing equipment. DRI is considering building a new manufacturing plant. Increasing the length of the runway is not a requirement for DRI, but the planning commission feels that doing so will help convince DRI to locate its new plant in Potsdam. Assuming that the town lengthens the runway, the Potsdam planning commission believes that the probabilities shown in the following table are applicable.
| DRI Plant | No DRI Plant | |
| Air Express Center | .30 | .10 |
| No Air Express Center | .40 | .20 |
For instance, the
The estimated annual revenue to the town, after deducting the cost of lengthening the runway, is as follows:
| DRI Plant | No DRI Plant | |
| Air Express Center | $600,000 | $150,000 |
| No Air Express Center | $250,000 | −$200,000 |
If the runway expansion project is not conducted, the planning commission assesses the probability that DRI will locate its new plant in Potsdam at .6; in this case, the estimated annual revenue to the town will be $450,000. If the runway expansion project is not conducted and DRI does not locate in Potsdam, the annual revenue will be $0 since no cost will have been incurred and no revenues will be forthcoming.
- a. What is the decision to be made, what is the chance
event , and what is the consequence? - b. Compute the expected annual revenue associated with the decision alternative to lengthen the runway.
- c. Compute the expected annual revenue associated with the decision alternative to not lengthen the runway.
- d. Should the town elect to lengthen the runway? Explain.
- e. Suppose that the probabilities associated with lengthening the runway were as follows:
| DRI Plant | No DRI Plant | |
| Air Express Center | .40 | .10 |
| No Air Express Center | .30 | .20 |
What effect, if any, would this change in the probabilities have on the recommended decision?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Suppose W-Mart is considering purchasing a parcel of land adjacent to the current site on which it plans to build its store. The cost of the parcel is $190,000, and it would enable WMart to increase the size of its store to 160,000 square feet. Discuss whether W-Mart should purchase the land and increase the planned size of the store.
The Megabuck Hospital Corp. is to build a state-subsidized nursing home catering to homeless patients as well as high-income patients. State regulations require that every subsidized nursing home must house a minimum of 700 homeless patients and no more than 620 high-income patients in order to qualify for state subsidies. The overall capacity of the hospital is to be 1,800 patients. The board of directors, under pressure from a neighborhood group, insists that the number of homeless patients should not exceed twice the number of high-income patients. Due to the state subsidy, the hospital will make an average profit of $13,000 per month for every homeless patient it houses, whereas the profit per high-income patient is estimated at $9,000 per month. How many of each type of patient should it house in order to maximize profit?
Group of answer choices
A)700 homeless patients and 1,100 high-income patients
B)1,200 homeless patients and 600 high-income patientsC)700 homeless patients…
The Megabuck Hospital Corp. is to build a state-subsidized nursing home catering to homeless patients as well as high-income patients. State regulations require that every subsidized nursing home must house a minimum of 750 homeless patients and no more than 900 high-income patients in order to qualify for state subsidies. The overall capacity of the hospital is to be 1,800 patients. The board of directors, under pressure from a neighborhood group, insists that the number of homeless patients should not exceed twice the number of high-income patients. Due to the state subsidy, the hospital will make an average profit of $9,500 per month for every homeless patient it houses, whereas the profit per high-income patient is estimated at $8,000 per month. How many of each type of patient should it house in order to maximize profit? HINT [See Example 3.] (If an answer does not exist, enter DNE.)
high-income patients:
homeless:
profit:
Chapter 21 Solutions
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Ch. 21.2 - Prob. 1ECh. 21.2 - A decision maker faced with four decision...Ch. 21.2 - Hudson Corporation is considering three options...Ch. 21.2 - Myrtle Air Express decided to offer direct service...Ch. 21.2 - The distance from Potsdam to larger markets and...Ch. 21.2 - Seneca Hill Winery recently purchased land for the...Ch. 21.2 - The Lake Placid Town Council has decided to build...Ch. 21.3 - Consider a variation of the PDC decision tree...Ch. 21.3 - A real estate investor has the opportunity to...Ch. 21.3 - Dante Development Corporation is considering...
Ch. 21.3 - Hales TV Productions is considering producing a...Ch. 21.3 - Martins Service Station is considering entering...Ch. 21.3 - Lawsons Department Store faces a buying decision...Ch. 21.4 - Suppose that you are given a decision situation...Ch. 21.4 - In the following profit payoff table for a...Ch. 21.4 - To save on expenses, Rona and Jerry agreed to form...Ch. 21.4 - The Gorman Manufacturing Company must decide...Ch. 21 - An investor wants to select one of seven mutual...Ch. 21 - Warren Lloyd is interested in leasing a new car...Ch. 21 - Hemmingway, Inc. is considering a 50 million...Ch. 21 - Embassy Publishing Company received a six-chapter...Ch. 21 - Lawsuit Defense Strategy John Campbell, an...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, statistics and related others by exploring similar questions and additional content below.Similar questions
- If during the following year it is predicted that each comedy skit will generate 30 thousand and each musical number 20 thousand, find the maximum income for the year. A television program director must schedule comedy skits and musical numbers for prime-time variety shows. Each comedy skit requires 2 hours of rehearsal time, costs 3000, and brings in 20,000 from the shows sponsors. Each musical number requires 1 hour of rehearsal time, costs 6000, and generates 12,000. If 250 hours are available for rehearsal and 600,000 is budgeted for comedy and music, how many segments of each type should be produced to maximize income? Find the maximum income.arrow_forwardThe Megabuck Hospital Corp. is to build a state-subsidized nursing home catering to homeless patients as well as high-income patients. State regulations require that every subsidized nursing home must house a minimum of 760 homeless patients and no more than 800 high-income patients in order to qualify for state subsidies. The overall capacity of the hospital is to be 2,100 patients. The board of directors, under pressure from a neighborhood group, insists that the number of homeless patients should not exceed twice the number of high-income patients. Due to the state subsidy, the hospital will make an average profit of $9,800 per month for every homeless patient it houses, whereas the profit per high-income patient is estimated at $7,800 per month. How many of each type of patient should it house in order to maximize profit? (If an answer does not exist, enter DNE.) high-income patients homeless patients profitarrow_forwardThe water-supply manager for Minneapolis needs to supply the city with at least 13 million gallons of potable water per day. The supply may be drawn from the local reservoir or from a pipeline to an adjacent town. The local reservoir has a maximum daily yield of 14 million gallons of potable water, and the pipeline has a maximum daily yield of 7 million gallons. By contract, the pipeline is required to supply a minimum of 6 million gallons per day. If the cost for 1 million gallons of reservoir water is $500 and the cost for 1 million gallons of pipeline water is $370, how much water should the manager get from each source to minimize daily water costs for the city? What is the minimum daily water cost?arrow_forward
- Travon is a landscape architect who has received a $300,000 budget from the city to build a new park. From experience, Travon knows that the budget is 13 for the materials, 12 for the labor, and the remainder for the anticipated profit margin. The dimensions for the park are 600×400 square feet and the specifications require 52,500 ft2 (square feet) of flower/tree gardens; 15,000 ft2 of playground equipment area; 30,000 ft2 of walkways; and 112,500 ft2 of open green space. Complete parts 1 through 4 below. 1. What is the expected dollar amount for materials, labor, and profit, and what fraction of the cost does profit represent? Solve for the expected dollar amount for materials and labor. $ for materials $ for laborarrow_forwardA farmer wants to start raising cows, horses, goats, and sheep and desires to have a rectangular pasture for the animals to graze in. However, no two different kinds of animals can graze together. In order to minimize the amount of fencing she will need, she has decided to enclose a large rectangular area and then divide it into four equally sized pens by adding three segments of fence inside the large rectangle that are parallel to two existing sides (see attached image). She has decided to purchase 7500 ft of fencing. What is the maximum possible area that each of the four pens will enclose? Make sure to include units in your answer.arrow_forwardA food manufacturing company wants to hire an auditing firm to asses their food safety performance. Two auditing firms are considered: firm A will change 42$/hr and a flat fee of $4500, while firm B will charge 50$/hr with a flat fee of $3900. What is the break-even point in number of required auditing hours that would yield equal value from both companies?arrow_forward
- Zimlick, Inc, a US pasta-machine manufacturer, is considering a $2.1 million device from United Technologies Corporation to automate pasta-machine quality inspection. The device will be depreciated according to the straight-line method over three years. The useful life of the device is 5 years, with an estimated sale value at year 5 of $300,000. The project will allow less pasta machines to be scrapped because of low quality, generating pretax earnings of $900,000 per year, and will not change the risk level of the firm. Zimlick’s cost of capital is 18%. The tax rate is 30%. Q1. Show a forecast of the cash flows for the project Q2. What is the net present value of the project? Q3. What is the IRR of the project? Q4. Would you undertake the investment? Why or why not?arrow_forwardWith the extra profits generated from the new customers, Jacobi is considering expanding his product range. He is interested in stocking a new type of motorcycle headset camera. To fit with current business plans, the new product would have to generate a minimum of 37.5% margin to be worthwhile. With that in mind, he hypothesises that customers will be willing to pay at least $350 for this product, which is the minimum sale price for it to be viable at the specified margin. To test if his belief is true, Jacobi hires a market researcher (you) to determine how much customers may be willing to pay for this product. You collect data from a sample of 100 motorcycle enthusiasts, all of whom resemble Jacobi’s usual clientele, and determine that the average amount people are willing to pay is $364, with a standard deviation of $35.Using this information, you conduct a hypothesis test at a 5% level of significance to check whether Jacobi’s belief is justified and to help him decide whether to…arrow_forwardThe water-supply manager for a Midwest city needs to supply the city with at least 10 million gal of potable (drinkable) water per day. The supply may be drawn from the local reservoir or from a pipeline to an adjacent town. The local reservoir has a maximum daily yield of 6 million gallons of potable water, and the pipeline has a maximum daily yield of 10 million gallons. By contract, the pipeline is required to supply a minimum of 6 million gallons/day. If the cost for 1 million gallons of reservoir water is $300 and that for pipeline water is $600, how much water should the manager get from each source to minimize daily water costs, C, for the city?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
College Algebra (MindTap Course List)AlgebraISBN:9781305652231Author:R. David Gustafson, Jeff HughesPublisher:Cengage Learning
Algebra: Structure And Method, Book 1AlgebraISBN:9780395977224Author:Richard G. Brown, Mary P. Dolciani, Robert H. Sorgenfrey, William L. ColePublisher:McDougal Littell
College Algebra (MindTap Course List)
Algebra
ISBN:9781305652231
Author:R. David Gustafson, Jeff Hughes
Publisher:Cengage Learning
Algebra: Structure And Method, Book 1
Algebra
ISBN:9780395977224
Author:Richard G. Brown, Mary P. Dolciani, Robert H. Sorgenfrey, William L. Cole
Publisher:McDougal Littell
2.1 Introduction to inequalities; Author: Oli Notes;https://www.youtube.com/watch?v=D6erN5YTlXE;License: Standard YouTube License, CC-BY
GCSE Maths - What are Inequalities? (Inequalities Part 1) #56; Author: Cognito;https://www.youtube.com/watch?v=e_tY6X5PwWw;License: Standard YouTube License, CC-BY
Introduction to Inequalities | Inequality Symbols | Testing Solutions for Inequalities; Author: Scam Squad Math;https://www.youtube.com/watch?v=paZSN7sV1R8;License: Standard YouTube License, CC-BY