EBK OM
6th Edition
ISBN: 9781305888210
Author: Collier
Publisher: YUZU
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Question
Chapter 4, Problem 10PA
Summary Introduction
Interpretation:Whether the firm lease the new inspection system or not.
Concept Introduction:
Breakeven analysis of any industry shows volume of production required to remain profitable. Break even point is a situation where firm is at no profit no loss situation
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PROBLEM STATEMENT
Based on studies that have been conducted, entry bookings for flight tickets sometimes deviate from what is booked by customers who want to board the plane to their desired destination. the existing system is not able to identify bookings made by customers properly. therefore, the existing system needs to be upgraded. Using a new flight ticket management system will be able to solve the problem. Secondly, the charge calculations performed still use the old method of calculation and take time to complete one calculation after another. With the new management system, the calculation and displayed total charges can be done automatically. Sometimes it is quite difficult for us to calculate the discounts given to customers who book flight tickets with large bookings. this will result in incorrectly giving the actual price to the customer and may result in losses. Moreover, with the new system, the amount of profit earned can be easily calculated. Lastly, daily…
Exhibit A.
Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant, medium or large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars:
Long-run Demand
Plant Size
Low
Medium
High
Small
225
280
300
Medium
120
280
370
Large
75
280
750
Referring to Exhibit A,
a. Identify the decision to be made, the decision alternatives, the chance event and the states of nature for this problem.
b. What alternative should be chosen under the maximin criterion?
Assume that the prior probabilities for low, medium and high demand are 0.2, 0.5 and 0.3, respectively.
c. What is the recommendation if the Bayes' Decision Rule is…
Exhibit A.
Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant, medium or large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars:
Long-run Demand
Plant Size
Low
Medium
High
Small
225
280
300
Medium
120
280
370
Large
75
280
750
Referring to Exhibit A, Assume that the prior probabilities for low, medium and high demand are 0.2, 0.5 and 0.3, respectively.
d. Construct a decision tree and solve this problem. Which decision alternative should be chosen and what is the expected payoff?
e. Consolidate the data and results in a table and update the decision tree to facilitate what-if analysis.
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