Question
Jason is the owner of a local factory. He has been active in getting new production contracts for his factory. Although he just realizes that
Jason is the owner of a local factory. He has been active in getting new production contracts for his factory. Although he just realizes that he needs to rent storage space at a near-by location in 2021 for his products. There are four different storage space renting services available near his factorys location. Here they are:
Applewood Renting: The initial contract fee is $1,200. Each square foot is $5.00
Blocks Renting: There is no initial contract fee. Each square foot is $8.25
Comfort Renting: The initial contract fee is $1,800 which also includes the first 200 square feet free of charge. Each square foot beyond the included 200 square feet is $3.25.
Dickson Renting: The flat fee with unlimited square feet access is $2,800.
Jason wants to select only one of these four possible renting services. He reviews his possible incoming product orders and estimates his factory will produce between 55 to 175 units. Each unit of his products requires 3 square-feet storage space. The projected probabilities for the possible 2021 annual production are:
Probability (2021 annual production of 55 units) = 0.35
Probability (2021 annual production of 95 units) = 0.15
Probability (2021 annual production of 135 units) = 0.45
Probability (2021 annual production of 175 units) = 0.05
Question: Which renting service should Jason select according to the conservative approach?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started