Perfect forecast of the economy

Assignment Help Operation Management

Reference no: EM131693834

Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition.

His alternatives are as follows:

Equipment Favorable Market Unfavorable Market ($)

Sub 100 $300,000.00 $-200,000.00

Oiler J $250,000.00 $-100,000.00

Texan $ 75,000.00 $ -18,000.00

The Lubricant is an expensive oil newsletter to which many oil giants subscribe, including Ken Brown. In the last issue, the letter described how the demand for oil products would be extremely high.

Apparently the American consumer will continue to use oil products even if the price of these

products doubles. Indeed, one of the articles in the Lubricant states that the chances of a

favorable market for oil products was 70%, while the chance of an unfavorable market was only 30%. Ken would like to use these probabilities in determining the best decision.

e) What decision model should be used?

What is the optimal decision?

f) What is the maximum amount that should be paid for a perfect forecast of the economy

g) Develop an opportunity loss table.

What is the minimax regret decision?

h) What approach would Ken use to minimize expected opportunity loss.

What is the expected opportunity loss decision?

i) Considering all the decisions calculated above, what do you think Ken should do?

Reference no: EM131693834

Questions Cloud

Thinks immigrants in american will be the next frontier : The Chairman of MG + BW states that he doesn’t believe that LBGT is the final frontier in diversity. He thinks immigrants in American will be the next frontier?

Change occurs in integumentary system : Any additional change occurs in integumentary system? Any additional change occurs in respiratory system?

Develop a vision and a business model for the new division : Develop a vision and a business model for this new division that clearly demonstrates your decision on what you want your business to become in the future.

Impact of the master budget on planning and control : What do you think he meant by this? Consider his comment with respect to the master budget. Do you agree or disagree?

Perfect forecast of the economy : What is the maximum amount that should be paid for a perfect forecast of the economy. What approach would Ken use to minimize expected opportunity loss.

Manufacture an effective vaccine against hiv : The ability to understand evolution is important in being able to understand specific current biological events. Discuss two of the three items

Calculate the gains or losses from early retirement of bonds : Calculate the gains or losses from early retirement of bonds when Rogers, Inc repurchased the bonds from the market for $4,200,000

Describe how the business infrastructure should be designed : Describe how the business infrastructure should be designed so that employees will be able to continue to perform business functions in the event of a disaster.

Long periods of time in the face : How do you explain the persistence of these genes over such long periods of time in the face of such intense selective pressure against them?

User Account

All Pages