Reference no: EM133041276
The questions in this section are independent of Part A and Part B. The scenario is the same but the values are different.
Senior management at Humber bakery requested a new analysis based on adjusting the selling price and the number of units produced under each production plan. Initial probability estimates are also updated. Resulting gross profits ($) and state of nature probabilities are given in the following payoff table.
|
Low Demand
|
Medium Demand
|
High Demand
|
|
Light Production
|
30,880
|
39,100
|
|
Moderate Production
|
14,010
|
42,780
|
|
Heavy Production
|
-22,140
|
6,630
|
|
Probability
|
0.3
|
0.5
|
The new analysis also necessitated updating the offer made to Bramptinos under the heavy production plan. If Humber chooses the heavy production plan, the probability that Bramptinos will accept the new offer is 34% and the associated gross profit is determined to be $72,450. Again here, if Bramptinos declines the offer, the loaves will still sell based on current demand conditions (low, medium, or high).
Use the decision tree you selected from Part A, along with the payoffs and probabilities provided on this page, to construct a decision tree for the problem.
I. No Sample Information
What is the expected monetary value and associated decision for the optimal alternative?
Max EMV = $36634
The optimal decision is Light production.
II. Sample Information
As noted earlier, Humber is considering hiring Professor Leung to conduct a market research survey. It is now determined that the results of the survey will indicate a favourable market condition with 48% chance. Otherwise, it will indicate an unfavourable market condition. If the survey provides a favourable outlook, the revised probabilities of low and high demand are 0.27 and 0.41 respectively. If unfavourable, the probabilities calculated for medium and low demand are 0.31 and 0.4 respectively.
Using the given sample information, create a multistage decision tree based on the tree you selected in Part A (IIa). Solve the tree.
- What is the best expected monetary value and associated decision under a favourable survey outcome?
Max EMV = $
The optimal decision is Select an answer Moderate Light Light or Heavy Light or Moderate Heavy Array Indifferent Moderate or Heavy Incorrect production.
- What is the best expected monetary value and associated decision under an ufavourable survey outcome?
Max EMV = $ 35812
The optimal decision is Select an answer Moderate Array Light or Heavy Moderate or Heavy Light or Moderate Heavy Indifferent Light Correct production.
- What is the value with the sample information?
EV with SI = $
- What is the value of the sample information (EVSI)?
- What is the optimal decision strategy if Professor Leung's consulting fees were $2,274.