1. A small parts manufacturer has just engineered a new product for the automotive industry. In order to produce the part the company can expand existing facilities, acquire a competitor, or subcontract production.
The company believes the product will either experience high market demand or low market demand. The company believes the product will either experience high market demand or low market demand, with probabilities of 0.55 and 0.45, respectively.
The following payoff table describes the company's decision situation (all numbers are in thousands). Note that some numbers are negative.
.............................................High Demand........Low Demand
Expand Facilities........................1600.......................-1150
Acquire Competitor....................900.......................-475
Subcontract Production............275.......................35
What is the best decision based on optimistic approach?
Expand Facilities
Acquire Competitor
Subcontract Production
What is the best decision based on pessimistic approach?
Expand Facilities
Acquire Competitor
Subcontract Production
How much (in thousands) is the average payoff if the company expands facilities?
How much (in thousands) is the average payoff if the company acquires competitor?
How much (in thousands) is the average payoff if the company subcontracts production?
What is the best decision based on equal likelihood approach?
Expand Facilities
Acquire Competitor
Subcontract Production
How much (in thousands) is the expected payoff if the company expands facilities?
How much (in thousands) is the expected payoff if the company acquires competitor?
How much (in thousands) is the expected payoff if the company subcontracts production?
What is the best decision based on expected value approach?
Expand Facilities
Acquire Competitor
Subcontract Production
How much (in thousands) is the expected payoff if the company has full information about the demand?
Calculate the expected value of perfect information (in thousands)?
How much (in thousands) is the maximum regret of the company if they expand facilities?
How much (in thousands) is the maximum regret of the company if they acquire competitor?
How much (in thousands) is the maximum regret of the company if they subcontract production?
What is the best decision based on minimax regret approach?
Expand Facilities
Acquire Competitor
Subcontract Production
BACKNEXT
Problem 2
Using molecular-gastronomy techniques, NitroFood developed a new product called icey-dog, where hot-dogs are instantaneously frozen with liquid nitrogen to seal the flavor.
The company can choose between licensing the technology for $85M to Oscar-Meyer or sell the product on their own. We know that, if they sell by themselves, NitroFood will make $4.0 per package of hot dogs and the company will sell either 60 Million (high demand), 40 Million (medium demand), or 15 Million (low demand) packages of hot dogs, depending on how the customers like the new frozen hot dogs.
If they decide to sell the products on their own. They need to make an advanced investment of 26M to build machines that freeze hot dogs.
How much is the payoff (in millions), if NitroFood licenses the technology to Oscar-Meyer and the demand is high?
How much is the payoff (in millions), if NitroFood licenses the technology to Oscar-Meyer and the demand is medium?
How much is the payoff (in millions), if NitroFood licenses the technology to Oscar-Meyer and the demand is low?
How much is the payoff (in millions), if NitroFood sells the produc on their own and the demand is high?
How much is the payoff (in millions), if NitroFood sells the produc on their own and the demand is medium?
How much is the payoff (in millions), if NitroFood sells the produc on their own and the demand is low?