XYZ coating company has reviewed four new processes for improving their coating line Answer
XYZ coating company
has reviewed four new processes for improving their coating line. The four
processes, labeled A, B, C, and D use different technology and have different
capacities. All the processes have the same level of production and the
lifetime.
The four states of nature represent four levels of consumer acceptance of the
firm’s products. Values in the table are net present value of future profits in
millions of dollars.
Forecasts indicate that there is a 0.4 probability of acceptance level 1, 0.3
chance of acceptance level 2, 0.6 chance of acceptance level 3, and 0.5 change
of acceptance level 4.
|
Consumer Acceptance Level (states of nature) |
||||
| 1 | 2 | 3 | 4 | |
| Alternative A | 35 | 55 | 85 | 165 |
| Alternative B | -105 | -5 | 155 | 225 |
| Alternative c | 75 | 85 | 75 | 65 |
| Alternative D | 55 | 55 | 75 | 65 |
Using the criterion of expected monetary value, which production alternative should be chosen?
Answer:
The Forecasts indicate that there is a 0.4 probability of acceptance level 1, 0.3 chance of acceptance level 2, 0.6 chance of acceptance level 3, and 0.5 change of acceptance level 4.
EMV ( Alternative A) = 350.4+550.3+0.685+0.5165 = 164 M$
EMV ( Alternative B) = -1050.4+-50.3+0.6155+0.5225 = 162 M$
EMV ( Alternative C) = 750.4+850.3+0.675+0.565 = 133 M$
EMV ( Alternative D) = 550.4+550.3+0.675+0.565 = 116 M$
So, we find that using the expected monetary value, the production alternative A has the highest expected monetary value and so the production alternative A should be chosen.
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"
