Great - 600(18) – 6000 = 4800 Figure 6.6 Equivalent Decision Tree 0.45 1074 Fair 0.35 - 300(18) – 6000 = -600 Awful 0.20 Market product - 90(18) – 6000 =-4380 -6000 1074 Abandon product

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.5: Multistage Decision Problems
Problem 18P
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Question

Explain in some detail how the PrecisionTree calculations in Figure 6.11 for the Acme problem are exactly the same as those for the hand-drawn decision tree in Figure 6.6. In other words, explain exactly how PrecisionTree gets the monetary values in the colored cells in Figure 6.11.

If your answer is negative number, enter "minus" sign.

 

Market   EMV
Great   ( $18 ×  - $ ) = $
Fair   ( $18 ×  - $ ) = $
Awful   ( $18 ×  - $ ) = $
Total   0.45 ×  __ $ + 0.35 × ___$ + 0.20 × ___ $ = ___ $
Great
600(18) – 6000 = 4800
Figure 6.6
Equivalent Decision
0.45
Tree
1074
Fair
0.35
300(18) – 6000 = -600
Awful
0.20
Market product
90(18) – 6000 =-4380
-6000
1074
Abandon product
Transcribed Image Text:Great 600(18) – 6000 = 4800 Figure 6.6 Equivalent Decision 0.45 Tree 1074 Fair 0.35 300(18) – 6000 = -600 Awful 0.20 Market product 90(18) – 6000 =-4380 -6000 1074 Abandon product
Figure 6.11
Decision Tree from PrecisionTree
A
B
1
Acme single-stage new product decision
2
All monetary values (except the unit
margin in cell B5) are in $1000s, and all
sa les volumes are in 1000s of units.
3 Inputs
4 Fixed cost
5 Unit margin
$6,000
$18
6
7 Market
8 Great
Probability
Sales volume
Net revenue
600
$10,800
$5,400
0.45
9 Fair
10 Awful
0.35
300
0.20
90
$1,620
11
12
45.0%
45.0%
Great
13
$10,800
$4,800
14
TRUE
Sales volume
$1,074
Yes
15
-$6,000
16
35.0%
35.0%
Fair
17
$5,400
-$600
18
20.0%
Awful
19
$1,620
-$4,380
20
Continue with product?
New Product Decision
21
$1,074
22
FALSE
0.0%
No
23
$0
Transcribed Image Text:Figure 6.11 Decision Tree from PrecisionTree A B 1 Acme single-stage new product decision 2 All monetary values (except the unit margin in cell B5) are in $1000s, and all sa les volumes are in 1000s of units. 3 Inputs 4 Fixed cost 5 Unit margin $6,000 $18 6 7 Market 8 Great Probability Sales volume Net revenue 600 $10,800 $5,400 0.45 9 Fair 10 Awful 0.35 300 0.20 90 $1,620 11 12 45.0% 45.0% Great 13 $10,800 $4,800 14 TRUE Sales volume $1,074 Yes 15 -$6,000 16 35.0% 35.0% Fair 17 $5,400 -$600 18 20.0% Awful 19 $1,620 -$4,380 20 Continue with product? New Product Decision 21 $1,074 22 FALSE 0.0% No 23 $0
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ISBN:
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Author:
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Publisher:
Cengage,