Specify optimal strategy-expected profit that strategy

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Reference no: EM13782347

Entering international markets has become a priority for many companies even in the US, which has a large domestic market? Is having a strategic alliance with foreign companies a better alternative to simply appointing distributors and dealers abroad? How have auto mobiles companies gone about it? How is Tesle strategy different form GM, Honda, Volkswagen or Toyota?

Bell Computers sells a certain model of personal computer for $2,000 each. It would like to produce 30,000 of them.

The company has manufacturing plants in Countries X and Y. Each computer produced in Country X (which is stable) costs $1,600. Each computer produced in Country Y costs only $1,300. However, Country Y is having serious political and economic problems, which may affect the production capacity. There is a 30% chance that up to 30,000 computers can be made in Country Y, a 60% chance that up to 15,000 can be made, and a 10% chance that none can be made.

The company must decide how many of the computers will be made in each country before it knows how serious the problems in Country Y will be. Bell can plan on having all of its computers produced in Country X, or Country Y, or it can have 15,000 produced in each country.

If the company is not able to produce as many computers as planned in Country Y, it can have the remaining ones made in Country Z. This country must be paid in its own currency, the gribnik. Country Z will charge 56 million gribniks to produce 15,000 machines, or 107 million gribniks to produce 30,000.

The exchange rate between dollars and gribnik is volatile. There is a 65% chance that the rate will be 2 gribniks per dollar, and a 35% chance that the rate will be 1.6 gribniks per dollar. The company decides how many computers to produce in Country Z after it sees what conditions are in Country Y but before it knows what the dollar-gribnik conversion rate will be.

Bell does not have to produce 30,000 computers if it is not economical to do so. Their objective is to determine how many computers should be produced and where they should be produced in order to maximize the expected value of total profit.

1. Use TreePlan to determine how many computers should be produced and where they should be produced.

2. Specify the optimal strategy and the expected profit that this strategy generates. (The conclusions the instructor drew for each of the two videos can be used as examples to answer this question.)

3. Provide a brief explanation why that strategy is optimal or other strategies are not. (The conclusions the instructor drew for each of the two videos can be used as examples to answer this question.)

Reference no: EM13782347

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