Concept explainers
a)
To determine: The value of D for which the Company A should fix the product and then market it.
Introduction: Simulation model is the digital prototype of the physical model that helps to
b)
To determine: The values of D for which the best first decision still to “continue development”.
Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.
c)
To determine: Why the two questions are asking different things.
Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.
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Practical Management Science
- Select the least accurate statement. A) The expected monetary value (EMV) criterion represents the long-run average of uncertain outcomes, so it should only be used for recurring decisions. b) For each possible decision and each possible outcome, the payoff table lists the associated monetary value. c)The certainty equivalent is the certain dollar amount a risk-averse decision maker would accept in order to avoid a gamble altogether. D) For a risk-averse decision maker, the certainty equivalent is less than the expected monetary value (EMV).arrow_forwardYour company must decide whether to introduce a new product. The sales of the product will be either at a high (success) or low (failure) level. The conditional value for this decision is as follows Decision High Low Introduce $4,000,000 -$2,000,000 Do Not Introduce 0 0 Probability 0.3 0.7 You have the option to conduct a market survey to sharpen you market demand estimate. The survey costs $200,000. The survey provides incomplete information about the sales, with three possible outcomes: (1) predicts high sales, (2) predicts low sales, or (3) inconclusive. Such surveys have in the past provided these results Result High Low Predicts High 0.4 0.1 Inconclusive 0.4 0.5 Predicts Low 0.2 0.4 c) Draw the complete decision tree, including the survey option. Explain where the values on the decision tree come fromarrow_forwardA tech startup developed a new product for its customers. It needs to decide whether to launch it next month or wait for nine months. The company discovers the success rate for options, along with their potential revenue. It also learns the probability of failure and corresponding losses for each. . . Option A: Launch next month has a 55% probability of success with potential revenue of $250,000. It has a 45% failure rate with a potential loss of $125,000. Option B: Launch in nine months has a 65% probability of success with potential revenue of $400,000. It has a 35% failure rate with a potential loss of $200,000. What is the potential value if they release the product next month?arrow_forward
- A company is considering whether to market a new product. Assume, for simplicity, that if this product is marketed, there are only two possible outcomes: success or failure. The company assesses that the probabilities of these two outcomes are p and 1 - p, respectively. If the product is marketed and it proves to be a failure, the company will have a net loss of $450,000. If the product is marketed and it proves to be a success, the company will have a net gain of $660,000. If the company decides not to market the product, there is no gain or loss. The company can first survey prospective buyers of this new product. The results of the consumer survey can be classified as favorable, neutral, or unfavorable. Based on similar surveys for previous products, the company assesses the probabilities of favorable, neutral, and unfavorable survey results to be 0.6, 0.3, and 0.1 for a product that will eventually be a success, and it assesses these probabilities to be 0.1, 0.2, and 0.7 for a…arrow_forwardA company is considering whether to market a new product. Assume, for simplicity, that if this product is marketed, there are only two possible outcomes: success or failure. The company assesses that the probabilities of these two outcomes are p and 1 2 p, respectively. If the product is marketed and it proves to be a failure, the company will have a net loss of $650,000. If the product is marketed and it proves to be a success, the company will have a net gain of $1,150,000. If the company decides not to market the product, there is no gain or loss. The company can first survey prospective buyers of this new product. The results of the consumer survey can be classified as favorable, neutral, or unfavorable. Based on similar surveys for previous products, the company assesses the probabilities of favorable, neutral, and unfavorable survey results to be 0.5, 0.3, and 0.2 for a product that will eventually be a success, and it assesses these probabilities to be 0.2, 0.3, and 0.5 for a…arrow_forwardThe model in Example 9.3 has only two market outcomes, good and bad, and two corresponding predictions, good and bad. Modify the decision tree by allowing three outcomes and three predictions: good, fair, and bad. You can change the inputs to the model (monetary values and probabilities) in any reasonable way you like. Then you will also have to modify the Bayes rule calculations. You can decide whether it is easier to modify the existing tree or start from scratch with a new tree.arrow_forward
- Which type of decision making is exemplified by the use of a decision tree with an expected-value criterion? decision making under uncertainty decision making under certainty decision making under risk none of the other choices « Previous Not saved Simpfunarrow_forwardA company faces a decision with respect to a product (codenamed M997) developed by oneof its research laboratories. It has to decide whether to proceed to test market M997 orwhether to drop it completely. It is estimated that test marketing will cost £100K.Past experience indicates that only 30% of products are successful in test market.If m997 is successful at the test market stage then the company faces a further decisionrelating to the size of plant to set up to produce m997. A small plant will cost £150K to buildand produce 2000 units a year whilst a large plant will cost £250K to build but produce 4000units a year.The marketing department have estimated that there is a 40% chance that the competitionwill respond with a similar product and that the price per unit sold (in £) will be as follows(assuming all production sold): Large plant Small plant Respond to competition 20 35 Not respond to competition 50 65 Assuming that the life of the market for M997 is estimated to…arrow_forwardSuppose you want to mine for gold. Your decisions are to build a mine or not, and to hire a geologist or not. If you find gold, you will earn R2 million in profit; if you fail to find gold, you will lose R0.5 million. On the geologist's website, he states he predicts success 50% of the time and failure 50% of the time; when he predicts success, then you are 80% likely to actually succeed; when he predicts failure, then you are 90% likely to actually fail. The geologist costs R0.1 million. You estimate without a geologist you have a 45% chance of success. Use a decision tree to maximize your expected value.arrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,