Reference no: EM132443671
Problem 1
Sunny Acres Orchard grows two types of fruit-melons and strawberries-and over the years it has identified two production levels and resulting total costs. The figures are shown in the following table where quantities are in flats (for strawberries) and cartons (for melons).
|
Production level A
|
Production level B
|
|
Strawberries
|
Melons
|
Strawberries
|
Melons
|
|
2,700
|
0
|
4,200
|
0
|
|
2,400
|
600
|
3,600
|
900
|
|
1,800
|
1,200
|
2,700
|
1,800
|
|
1,200
|
1,500
|
2,100
|
2,100
|
|
750
|
1,650
|
900
|
2,550
|
|
0
|
1,800
|
0
|
2,700
|
|
Total cost of A: $15,000
|
Total cost of B: $25,000
|
This year it is expected that the price of strawberries will be $10/flat and melons will be $15/carton.
a. What is the best production mix at each cost level?
b. How much profit should Sunny Acres Orchard expect at each production level.
Problem 2
Parker Samuelson has an option to mine for gold on a 40-acre tract in northwest Idaho. She has three choices of action:
1. She can start mining immediately.
2. She can conduct further tests to assess the likelihood of finding gold.
3. She can drop the option.
Testing would cost $45,000, and the cost of mining would be $150,000. If she finds gold, she expects to net $600,000.
Parker estimates the following probabilities. With no testing, she estimates that the probability of finding gold is 55 percent. She expects that the probability of the test being successful is 60 percent. If the test is favorable, it is 85 percent probable that there is gold in the track, but if the test is not favorable it is only 10 percent. Use a decision tree to make a recommendation to Parker. Comment on any additional considerations that Parker should be aware of in making this decision.
Problem 3
Telecom LLC has calculated the return on assets (ROA) for one of its projects using a simulation method. By simulating the operations 1,000 times, they obtained an ROA of 16.7 percent and a standard deviation of 6.2. The results of the simulation conform quite closely to a normal curve.
The company's objective is to achieve an ROA of 12 percent. What is the probability that the project will achieve at least that level?