Question
Design Option A: has a 0.9 probability of selling 61,000 cameras and a 0.1 probability of selling 63,000 cameras. The design will cost $1,000,000. Design
Design Option A: has a 0.9 probability of selling 61,000 cameras and a 0.1 probability of selling 63,000 cameras. The design will cost $1,000,000. Design Option B: has an alpha 0.8 probability of selling 68,000 good cameras and an alpha 0.2 probability of selling 62,000 good cameras. The design will cost $1,350,000. In addition, the company needs to use expensive screens which causes an additional manufacturing cost of $250,000 for this design.
In any option, each camera will cost $75 to produce and the selling price for each good camera is $150.
1. Draw the decision tree appropriate to the alternatives and outcomes stated.
2. Using the decision tree and EMV, what is their best choice? (Show your calculation for profits for each probability/option and EMV
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