| Decisions | Cool Weather | Warm Weather |
| Sell Soft Drinks | 50 | 60 |
| Sell Ice Cream | 30 | 90 |
Suppose that prior to making her decision, she decides to hear the forecast of the local weather reporter. In the past, when it has been cool, the weather reporter has forecast cool weather 80% of the time. When it has been warm, the weather reporter has forecast warm weather 70% of the time.
9. Set up probability revision tables - one for cool weather and one for warm weather. (round revised probabilities at 2 decimals)
10. Carry out a posterior analysis of the vendor decision problem. That is assuming the forecast is cool recalculate the EMV for soft drinks and ice cream and determine the choice that should be made. Assuming the forecast is warm recalculate the EMV for soft drinks and ice cream and determine the choice that should be made. Show your calculations
11. Determine the expected payoff of sampling Show your calculations
12. Determine the expected value of sample information (EVSI). Show your calculations
13. A manufacturer must decide whether to build a small or a large plant at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6 respectively. If a small plant is built, and demand is high, the production manager may choose to maintain the current size or to expand. The net present value of profits is $223,000 if the firm chooses not to expand. However, if the firm chooses to expand, there is a 50% chance that the net present value of the returns will be $330,000 and 50% chance the estimated net present value of profits will be $210,000. If a small facility is built and demand is low, there is no reason to expand and the net present value of the profits is $200,000. However, if a large facility is built and the demand turns out to be low, the choice is to do nothing with a net present value of $40,000 or to stimulate demand through local advertising. The response to advertising can be either modest with a probability of .3 or favorable with a probability of .7. If the response to advertising is modest the net present value of the profits is $20,000. However, if the response to advertising is favorable, then the net present value of the profits is $220,000. Finally, if the large plant is built and the demand happens to be high, the net present value of the profits $800,000. Below is the decision tree for this situation. Determine the value for each node (include values on your answer sheet) and determine what the company should do under these circumstances.
Decisions Cool Weather Warm Weather Sell Soft Drinks 50 60 Sell Ice Cream 30 90 Suppose that prior to making her decision, she decides to hear the forecast of the local weather reporter. In the past, when it has been cool, the weather reporter has forecast cool weather 80% of the time. When it has been warm, the weather reporter has forecast warm weather 70% of the time. 9. Set up probability revision tables - one for cool weather and one for warm weather. (round revised probabilities at 2 decimals) 10. Carry out a posterior analysis of the vendor decision problem. That is assuming the forecast is cool recalculate the EMV for soft drinks and ice cream and determine the choice that should be made. Assuming the forecast is warm recalculate the EMV for soft drinks and ice cream and determine the choice that should be made. Show your calculations 11. Determine the expected payoff of sampling Show your calculations 12. Determine the expected value of sample information (EVSI). Show your calculations 13. A manufacturer must decide whether to build a small or a large plant at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6 respectively. If a small plant is built, and demand is high, the production manager may choose to maintain the current size or to expand. The net present value of profits is $223,000 if the firm chooses not to expand. However, if the firm chooses to expand, there is a 50% chance that the net present value of the returns will be $330,000 and 50% chance the estimated net present value of profits will be $210,000. If a small facility is built and demand is low, there is no reason to expand and the net present value of the profits is $200,000. However, if a large facility is built and the demand turns out to be low, the choice is to do nothing with a net present value of $40,000 or to stimulate demand through local advertising. The response to advertising can be either modest with a probability of .3 or favorable with a probability of .7. If the response to advertising is modest the net present value of the profits is $20,000. However, if the response to advertising is favorable, then the net present value of the profits is $220,000. Finally, if the large plant is built and the demand happens to be high, the net present value of the profits $800,000. Below is the decision tree for this situation. Determine the value for each node (include values on your answer sheet) and determine what the company should do under these circumstances. Decisions Cool Weather Warm Weather Sell Soft Drinks 50 60 Sell Ice Cream 30 90 Suppose that prior to making her decision, she decides to hear the forecast of the local weather reporter. In the past, when it has been cool, the weather reporter has forecast cool weather 80% of the time. When it has been warm, the weather reporter has forecast warm weather 70% of the time. 9. Set up probability revision tables - one for cool weather and one for warm weather. (round revised probabilities at 2 decimals) 10. Carry out a posterior analysis of the vendor decision problem. That is assuming the forecast is cool recalculate the EMV for soft drinks and ice cream and determine the choice that should be made. Assuming the forecast is warm recalculate the EMV for soft drinks and ice cream and determine the choice that should be made. Show your calculations 11. Determine the expected payoff of sampling Show your calculations 12. Determine the expected value of sample information (EVSI). Show your calculations 13. A manufacturer must decide whether to build a small or a large plant at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6 respectively. If a small plant is built, and demand is high, the production manager may choose to maintain the current size or to expand. The net present value of profits is $223,000 if the firm chooses not to expand. However, if the firm chooses to expand, there is a 50% chance that the net present value of the returns will be $330,000 and 50% chance the estimated net present value of profits will be $210,000. If a small facility is built and demand is low, there is no reason to expand and the net present value of the profits is $200,000. However, if a large facility is built and the demand turns out to be low, the choice is to do nothing with a net present value of $40,000 or to stimulate demand through local advertising. The response to advertising can be either modest with a probability of .3 or favorable with a probability of .7. If the response to advertising is modest the net present value of the profits is $20,000. However, if the response to advertising is favorable, then the net present value of the profits is $220,000. Finally, if the large plant is built and the demand happens to be high, the net present value of the profits $800,000. Below is the decision tree for this situation. Determine the value for each node (include values on your answer sheet) and determine what the company should do under these circumstances
