Ms. Rich has just bought a new $30,000 car. As a reasonably safe driver, she believes that there is only a 5% chance of being in an accident in the forthcoming year. If she is involved in an accident, the damage to her new car depends on the severity of the accident. The probability distribution for the range of possible accidents and the corresponding damage amounts (in dollars) are shown in the table below. Ms. Rich is trying to decide whether she is willing to pay $170 each year for collision insurance with a $300 deductible. Note that with this type of insurance, she pays the first $300 in damages if she causes an accident, and the insurance company pays the remainder. Distribution of Accident Types and Corresponding Damage Amounts Type of Accident Conditional Probability Damage to Car Minor 0.60 $200 Moderate 10.20 $1,000 Serious 0.10 $4,000 Catastrophic 0.10 $30,000 Fully respond to both discussion part a and part b and at least one of your fellow student postings for full credit. PART-A: Perform a sensitivity analysis on the optimal decision and summarize your findings. Vary the probability of being in an accident from 0% to 10%, the insurance premium from $50 to $300, and the deductible amount from $0 to $600. In response to which model inputs is the expected total cost value most sensitive? PART-B: Within your current or future role as a technical or engineering manager, what is the likelihood that you will ask your subordinates to perform sensitivity analyses on key decision variables? This would involve varying the key variables within your decision model to better understand how variable levels affect your optimal decision selection. Ms. Rich has just bought a new $30,000 car. As a reasonably safe driver, she believes that there is only a 5% chance of being in an accident in the forthcoming year. If she is involved in an accident, the damage to her new car depends on the severity of the accident. The probability distribution for the range of possible accidents and the corresponding damage amounts (in dollars) are shown in the table below. Ms. Rich is trying to decide whether she is willing to pay $170 each year for collision insurance with a $300 deductible. Note that with this type of insurance, she pays the first $300 in damages if she causes an accident, and the insurance company pays the remainder. Distribution of Accident Types and Corresponding Damage Amounts Type of Accident Conditional Probability Damage to Car Minor 0.60 $200 Moderate 10.20 $1,000 Serious 0.10 $4,000 Catastrophic 0.10 $30,000 Fully respond to both discussion part a and part b and at least one of your fellow student postings for full credit. PART-A: Perform a sensitivity analysis on the optimal decision and summarize your findings. Vary the probability of being in an accident from 0% to 10%, the insurance premium from $50 to $300, and the deductible amount from $0 to $600. In response to which model inputs is the expected total cost value most sensitive? PART-B: Within your current or future role as a technical or engineering manager, what is the likelihood that you will ask your subordinates to perform sensitivity analyses on key decision variables? This would involve varying the key variables within your decision model to better understand how variable levels affect your optimal decision selection
