Question 1: Problem Solving
Given data about company A and company B are provided in the table below:
| |
Company A
|
Company B
|
|
Fixed Cost
|
5000
|
5000
|
|
Selling price/Unit
|
180
|
200
|
|
Cost/Unit
|
130
|
175
|
Solve the following questions:
Q1. Write down the profit model for both companies A and B.
Q2. Compute the Breakeven Point for both companies.
Q3. Which company is more profitable? Explain why.
Q4. For company A, how many units should the company sell in order to reach a profit of 500$?
Q5. For company A, what is the total cost from selling 200 units?
Q6. For company B, what is the profit from selling 250 units?
Question 2: Problem Solving
A factory wants to improve its service capacity by purchasing a new machine. Three different machines are available. The table below displays the estimated profits for all combinations of decisions with outcomes.
|
Decisions
|
States of Nature (Outcomes)
|
|
High demand
|
Average demand
|
Low demand
|
|
Purchasing Machine A
|
$10,000
|
$3,000
|
($4,000)
|
|
Purchasing Machine B
|
$6,000
|
$4,000
|
($2,000)
|
|
Purchasing Machine C
|
$2,000
|
$500
|
$0
|
|
Probabilities
|
0.5
|
0.2
|
0.3
|
Questions:
Q1. In case of uncertainty, apply the Maximax and Maximin criteria to find the corresponding best decision.
Q2. Use the expected monetary value (EMV) method to find the best decision.
Q3. A data analytic company proposed to the decision maker certain information about the market condition for $3000. Should the decision maker purchase the information for that price? Explain why.
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