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QUESTION 1 50 MARKS A University of Technology graduate, Marsha Wilson has developed her own line of skin care products. She not only sells these
QUESTION 1 50 MARKS A University of Technology graduate, Marsha Wilson has developed her own line of skin care products. She not only sells these products locally in Jamaica, but through a prominent distributor, exports to the Eastern Caribbean. She believes the organic lotion line has potential and must choose a manufacturing process. Her manufacturing alternatives are batch manufacturing, custom manufacturing, or she can invest in new technology. Demand for the organic lotion has four classifications: poor, fair, good and excellent. The table below indicates the payoffs (profits) associated with each process/demand combination Manufacturing POOR FAIR GOOD EXCELLENT Process BATCH $ 200,000 $1,000,000 $1,200,000 $1,300,000 CUSTOM $ 100,000 $ 300,000 $ 700,000 $ 800,000 NEW TECHNOLOGY $1,000,000 -$ 500,000 $ 500,000 $2,000,000 4 marks a) If she is optimistic which alternative should she choose b) If she is pessimistic which alternative should she choose c) To minimise her opportunity loss which alternative should she choose d) If she uses the Laplace method which would be the alternative of choice 5 marks 10 marks 6 marks Marsha has obtained information about the demand probabilities from the marketing firm, Target Dot. These probabilities are 20.0% for poor demand, 35.7% for good demand, 30.5% for excellent demand. e) Which alternative should she choose using the expected monetary value(EMV) criterion? 10 marks A) Target Dot wants Marsha to pay $300,000 for this information. Should she pay it, why? 15 marks
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