John Wiley Publishing Company publishes an operations management textbook that i

Question

John Wiley Publishing Company publishes an operations management textbook that is scheduled for a revision. The book has been moderately successful, but each year more new books enter the market, some existing books are dropped by publishers, and various innovative pedagogical approaches are introduced by authors and publishers, such that the competitive market is always highly uncertain. In addition, the role the Internet will play in future textbook publishing is an unknown. As a result. Wiley is trying to decide whether to publish the next edition of the OM book as a smaller paperback, publish a new edition very similar in size and content to the current edition, significantly revise the hook with an emphasis on services and processes, or make a major revision with significant physical changes including adding color and more graphics. The following payoff table summarizes the possible revision decisions with profits (or losses) for the three-year lifecycle of the new edition, and the future states of nature relative to the competitive market. Determine the best decision for the publisher using the following criteria. a. Maximax b. Minimax c. Equal likelihood d. Hurwicz (alpha = .35) In Problem S1-8, if Wiley Publishing is able to assign probabilities of occurrence of 0.23 to unfavorable market conditions, 0.46 for the same market conditions, and 0.31 for favorable market conditions, what is the best decision using expected value? Based on the results in Problem S1-8 and the expected value result in this problem, does there appear to be an overall "best" decision? Compute the expected value of perfect information, and explain its meaning.

Explanation / Answer

1.8.a) From the given data

Decistion: Major Physical

b)

Maximum = 68000 Decision: Paperback

c)

Maximum average = 423666.667 Decision: Major conteat

d)

Maximum average = 273900   Decision: Major conteat

Maximax Criteria Decision Unfavorable Same Favorable Maximum Paperback 68000 170000 395000 395000 Similar Revision 24000 375000 672000 672000 Majer conteat 31000 515000 725000 725000 Major Physical -105000 280000 972000 972000

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