Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A firm decides whether to produce products by an onshore plant or an offshore plant. The fixed cost and the variable cost of the onshore

A firm decides whether to produce products by an onshore plant or an offshore plant. The fixed cost and the variable cost of the onshore plant are $40,000 and $1.2, while the fixed cost and the variable cost of the offshore plant are $30,000 and $1.0 (suppose the variable costs include all costs related to production and transportation.) However, although the offshore plant has lower cost, the reliability of the two plants are different: while the onshore plant can always guarantee to satisfy all order request, the offshore plant has 60% probability to meet all order request and 40% probability to satisfy only 80% of the order request. The demand in the next season is 20,000 and the marginal revenue of each unit of product is $5. Question: Which plant should the firm choose?

* Please provide the solution using a decision tree. I need this done via a detailed decision tree that shows net profit for high demand, and low demand cases. 2 Separate decision trees for onshore and offshore. I also need the analysis to show expected value of net profit for onshore and offshore.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

To solve this problem well construct decision trees for both the onshore and offshore plants and cal... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Supply Chain Management Strategy Planning And Operation

Authors: Sunil Chopra

7th Global Edition

129225789X, 978-1292257891

More Books

Students also viewed these General Management questions

Question

In what sense can the historian be objective?

Answered: 1 week ago