Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

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Question

Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

ABC Inc. must make a decision on its current capacity for next year. Estimated profits (in $000's) based on next year's demand are shown in the table below.

Next Year's

Demand

Alternative Low Medium High
Expand        $100 $200 $250
Subcontract $50         $120 $125
Do Nothing $40         $50 $ 55

1). Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

a. Which alternative should be chosen using the expected monetary value (EMV) criterion?

b. What is the expected value under perfect information (EVPI)?

c. Develop a Decision tree for this problem.

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Answer 1

Answer #1

dear student, you can refer to this document chapter_8_9_COM_315.docx

answered by: zealot

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Answer 2

Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

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Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

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ABC Inc. must make a decision on its current capacity for next year. Estimated profits (in $000's) based on next year's demand are shown in the table below.

A small building contractor has recently experienced two successive years in which work opportunities exceeded the...

Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

Homework Answers

Add Answer to: Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.

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ABC Inc. must make a decision on its current capacity for next year. Estimated profits (in $000's) based on next year's demand are shown in the table below.

A small building contractor has recently experienced two successive years in which work opportunities exceeded the...

Add Answer to:
Assume that ABC Inc. has hired a marketing research firm that provided additional information regarding next year's demand. Suppose that the probabilities of low and high demand are assessed as follows: P(Low) = 0.3, P(Medium)= 0.3 and P(High) = 0.4.