Question

MacDonald​ Products, Inc., of​ Clarkson, New​ York, has the option of ​(a) proceeding immediately with production of a new​ top-of-the-line stereo TV that has just completed prototype testing or ​(b) having the value analysis team complete a study. If Ed​ Lusk, VP for​ operations, proceeds with the existing prototype​ (option a), the firm can expect sales to be 100 comma 000 units at ​$610 ​each, with a probability of 0.77 and a 0.23 probability of 60 comma 000 at ​$610. ​If, however, he uses the value analysis team​ (option b), the firm expects sales of 85 comma 000 units at ​$720​, with a probability of 0.69 and a 0.31 probability of 60 comma 000 units at ​$720. Value​ engineering, at a cost of ​$90 comma 000​, is only used in option b. Which option has the highest expected monetary value​ (EMV)? The EMV for option a is ​$ nothing and the EMV for option b is ​$ nothing. ​Therefore, option ▼ a b has the highest expected monetary value. ​(Enter your responses as integers​.)

Answer 1