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A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Probability Wind-up action Pneumatic action Electrical action Light Demand 0.25 $325,000 $300,000 -$400,000 Moderate Demand 0.45 $190,000 $420,000 $240,000 Heavy Demand 0.3 $170,000 $400,000 $800,000 a. Use the Maximax, Maximin, and Equally Likely criterion to determine the best alternative? b. Calculate the EMV for each decision alternative? b. Which action should be selected? c. What is the expected value with perfect information? d. What is the expected value of perfect information?

A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Probability Wind-up action Pneumatic action Electrical action Light Demand 0.25 $325,000 $300,000 -$400,000 Moderate Demand 0.45 $190,000 $420,000 $240,000 Heavy Demand 0.3 $170,000 $400,000 $800,000 a. Use the Maximax, Maximin, and Equally Likely criterion to determine the best alternative? b. Calculate the EMV for each decision alternative? b. Which action should be selected? c. What is the expected value with perfect information? d. What is the expected value of perfect information?

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 31P
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A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Probability Wind-up action Pneumatic action Electrical action Light Demand 0.25 $325,000 $300,000 -$400,000 Moderate Demand 0.45 $190,000 $420,000 $240,000 Heavy Demand 0.3 $170,000 $400,000 $800,000 a. Use the Maximax, Maximin, and Equally Likely criterion to determine the best alternative? b. Calculate the EMV for each decision alternative? b. Which action should be selected? c. What is the expected value with perfect information? d. What is the expected value of perfect information?
Transcribed Image Text:A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Probability Wind-up action Pneumatic action Electrical action Light Demand 0.25 $325,000 $300,000 -$400,000 Moderate Demand 0.45 $190,000 $420,000 $240,000 Heavy Demand 0.3 $170,000 $400,000 $800,000 a. Use the Maximax, Maximin, and Equally Likely criterion to determine the best alternative? b. Calculate the EMV for each decision alternative? b. Which action should be selected? c. What is the expected value with perfect information? d. What is the expected value of perfect information?
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