Management Science: Decision Analysis Under Uncertainty
Posted: Mon Jul 11, 2022 12:46 pm
Management Science: Decision Analysis Under Uncertainty
2. A manufacturer of hair tonic is considering production of a new hairdressing. The incremental profit is $10 per unit (on a present value basis), and the necessary investment in equipment is $500,000. The estimate of demand is as follows: Units of Demand 30,000 40,000 50,000 60,000 70,000 Probability 0.05 0.10 0.20 0.30 0.35 1.00 A. Should the new product be produced? What is the expected profit? B. What is the expected value of perfect information? C. How would the expected value of perfect information change if the probability of 30,000 units was 0.10 and the probability of 70,000 units was 0.03?
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