Zhu Manufacturing is considering the introduction of a family of new products. L
ID: 3041157 • Letter: Z
Question
Zhu Manufacturing is considering the introduction of a family of new products. Long-term demand for the product group
is somewhat predictable, so the manufacturer must be concerned with the risk of choosing a process that is inappropriate. Faye Zhu is VP of operations. She can choose among batch manufacturing or custom manufacturing, or she can invest in group technology. Zhu won't be able to forecast demand accurately until after she makes the process choice. Demand will be classified into four compartments: poor, fair, good, and excellent. The table below indicates the payoffs (profits) associated with each process/demand combination, as well as the probabilities of each long-term demand level:
Demand
Poor
Fair
Good
Excellent
Probability
0.05
0.40
0.30
0.25
BatchBatch
$200,000
$1,000,000
$1,200,000
$1,300,000
CustomCustom
$250,000
$400,000
$650,000
$800,000
Group technologyGroup technology
$1,250,000
$500,000
$500,000
$2,200,000
1) The alternative that provides Zhu the greatest expected monetary value (EMV) is ____________
a- Custom
b- group technology
c- batch
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2.) Palmer Jam Company is a small manufacturer of several different jam products. One product is an organic jam that has no preservatives, sold to retail outlets. Susan Palmer must decide how many cases of jam to manufacture each month. The probability that demand will be 7 cases is 0.15, for 8 cases it is 0.20, for 9 cases it is 0.40, and for 10 cases it is 0.25. The cost of every case is $50, and the price Susan gets for each case is $100. Unfortunately, any cases not sold by the end of the month are of no value as a result of spoilage.
Based on the given information, Susan's conditional profits table for jam is:
Demand
7
8
9
10
Produce
p=0.15
p=0.20
p=0.40
p=0.25
7
____
_____
_____
_____
_____________________________________________________________________________________________________________________________________________________
3. ) Given the following conditional value table, determine the appropriate decision under uncertainty using maximax, maximin, equally likely methods.
States of Nature
Alternatives
Very Favorable Market
Average Market
Unfavorable Market
Large plant
$275,000
$100,000
$150,000
Small plant
$200,000
$60,000
$10,000
Overtime
$100,000
$40,000
$1,000
Do nothing
$0
$0
$0
a) Using the maximax method, the appropriate decision is __(PART 1)_______ , with a value of return of $ __(PART 2)_________
(enter your response as a whole number).
Part 1
a) Large Plant
b) Small Plant
c) Overtime
d) Do nothing
Part 2
with a value of return of $ ___________
(enter your response as a whole number).
Demand
Poor
Fair
Good
Excellent
Probability
0.05
0.40
0.30
0.25
BatchBatch
$200,000
$1,000,000
$1,200,000
$1,300,000
CustomCustom
$250,000
$400,000
$650,000
$800,000
Group technologyGroup technology
$1,250,000
$500,000
$500,000
$2,200,000
Explanation / Answer
Solving question 1
Batch = 0.05* (-200000)+0.40* 1000000 +0.3*1200000+0.25* 1300000= 1075000
Custom = 0.05* (250000)+0.40* 400000 +0.3*650000+0.25* 800000= 567500
Technology 0.05* (-1250000)+0.40* -500000 +0.3*500000+0.25* 2200000 = 437500
The correct alternative is Batch.
Please repost the second question individually.
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