Exam 17: Decision Making

A manufacturing firm is considering an entirely new product that will require additional capital equipment,training,and an addition to their existing facility that will cost $50,000 per year.The projected retail price is $45 per unit,and the variable cost of production is $12.50.What is the break-even for this product? Solve using both the graphical and algebraic approaches.

The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store.The demand will be weak,fair,or strong;probabilities are 0.25,0.30,and 0.45,respectively. If the company installs a small booth that sells only coffee,the associated payoffs are -$25,000;25,000;and $100,000 for weak,fair,and strong demand.If the company chooses an expanded facility that offers sandwiches and breakfast foods,it must build a kitchen and rent additional space.The payoffs for an expanded facility are -$200,000,-$25,000,and $500,000. a.Draw a decision tree for this problem. b.What should management do to achieve the highest expected payoff?

A poultry farmer is debating whether to acquire Rhode Island Reds or Buff Orpingtons to lay the eggs he wants to sell.The fixed costs for the Buffs would be $7500 and the variable costs per egg would be a dime per egg.The Reds would have a fixed cost of $6000 and a variable cost of fifteen cents.At what level of egg production would the poultry farmer be indifferent between Rhode Island Reds and Buff Orpingtons?

Use the following to answer the questions below. A company that is introducing a new product has to choose between four different manufacturing methods,referred to as methods A,B,C and D.Depending on the demand for the product,they have forecast different levels of expenses for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low. Table A.3 -Using the information in Table A.3,which alternative is best in accordance with a decision criterion of minimax regret?

A(n)________ shows the amount of revenue for each alternative if each possible event occurs.

Pops has a cost function of 3x2-25x+34,374.74 and a revenue function of 5x2.Using Excel (or algebra),determine a breakeven point.What is their fixed cost? What is their break-even point in both units and dollar sales?

Use the following to answer the questions below. A company that is introducing a new product has to choose between three different manufacturing methods,referred to as methods A,B,and C.Depending on the demand for the product,they have forecast different levels of revenue for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low. Table A.2 -Using the information in Table A.2,which alternative is best in accordance with a decision criterion of maximin?

An analyst that can't assign probabilities to the events must be engaged in decision-making under ________.

A new product is being considered that will require $45,000 in fixed costs per year.Variable costs per unit are estimated to be $12.72.The firm wants to break even if 8000 units are produced and sold per year.What should be the price?

A(n)________ is typically used to represent an event node in a decision tree.

A marketing director must decide among four alternatives for a new marketing campaign.She ascertains that the probability of high demand is 0.45 and the probability of low demand is 0.55.What is the best choice with the payoffs shown in the tree?

Use the following to answer the questions below. A company that is introducing a new product has to choose between three different manufacturing methods,referred to as methods A,B,and C.Depending on the demand for the product,they have forecast different levels of revenue for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low. Table A.2 -Using the information in Table A.2,which alternative is best if further study revealed that the probability of high growth is 0.2,the probability of medium growth is 0.5,and the probability of low growth is 0.3?

The decision rule ________ is also referred to as the pessimist's criterion.

A(n)________ is the difference between a given payoff and the best payoff for a given state of nature.

A company is screening ideas for new services.Five alternative service ideas are being considered.Management identified four criteria and weighted them as follows: A = 30,B = 10,C = 20,and D = 40.They have also come up with scored values for the five alternatives and the four criteria as shown following.Management has decided that if an alternative has less than a total scored value of 600,it should automatically be rejected.Use the preference matrix technique to determine which idea should be accepted.

The Forsite Company is screening three new product ideas.Resource constraints allow only one idea to be commercialized at the present time.The following estimates have been made for the five performance criteria that management feels are most important.If the five criteria are equally weighted,what are the best and worst alternatives?

Use the following to answer the questions below. A company must decide if it will make or buy an item it needs.The company can make the item for $10 per unit,but must invest $15,000 in tooling to do so.An outside firm has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price). -Refer to the instruction above.What is the break-even quantity in this situation?

A software company that sells its software pre-installed in personal computers is considering making its own computers instead of purchasing them from the Mega-Chip Company.To assemble their own computers could cost $1,000,000 in fixed costs and $100 per unit in variable costs.The company currently buys PCs for $1200,with no fixed costs.What is the break-even quantity?

Use the following to answer the questions below. A company that is introducing a new product has to choose between four different manufacturing methods,referred to as methods A,B,C and D.Depending on the demand for the product,they have forecast different levels of expenses for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low. Table A.3 -Using the information in Table A.3,which alternative is best in accordance with an optimistic outlook?

The decision rule in decision making under uncertainty most appropriate for the pessimistic manager would be: