The Question Is Related To 55 To 57 56 1 (838.73 KiB) Viewed 34 times
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The Question Is Related To 55 To 57 56 2 (71.74 KiB) Viewed 34 times
The Question Is Related To 55 To 57 56 3 (97.31 KiB) Viewed 34 times
The information here is the same for answering questions 55 to 57. A manager needs to decide how many additional machines to buy to cope with a possible increase of demand. In order to maximize the profit, he has three alternatives: (1) buy two additional machines. (2) buy one additional machine, and (3) subcontract. If only one additional machine is purchased and demand is more than it can handle, a second additional machine can be purchased at a later time. If demand is high, the manager can choose three subsequent options: One option is to purchase one more machine. A second option is to use overtime. The third option is to do nothing. Details can be found in the following decision tree (Dollar values are the net profit). $ 4,000 $ 5,000 Do nothing Subcontract Overtime $ 6,000 High 1 machine Low 2 machines $ 4,000 $ 7,000 more machine High $ 5,000 Low $ 3,000 Probability: low demand (0.4); high demand (0.6)
What is the best decision? Purchase 1 additional machine later Subcontract Do nothing until the initial demand is observed Overtime Purchase 2 machines initially
What is the expected net profit? $5,200 $5.400 $7,000 $5,000 $5,800
What is the most amount of money that the manager would be willing to pay to learn about the market demand? $400 $800 $0 $1,600 $600
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