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Question Status: ? 2. 3. 4 5 6 7. 8 2:15 PM The product design group of ABC, Inc., must decided on one of
Question Status: ? 2. 3. 4 5 6 7. 8 2:15 PM The product design group of ABC, Inc., must decided on one of three design strategies for a new product line. a) Low-tech, a low-technology, low-cost design process consisting of hiring several new junior engineers; b) Subcontract, a medium-cost approach using a good outside design staff; c) High-tech: a high-technology design approach using the very best of the inside staff and the latest computer-aided design technology. Better and more sophisticated design strategies are more costly, but lead to lower cost production. The table that follows reports, for each strategy, the fixed cost, and the probable variables costs (per unit) of production along with their probabilities. Note that probabilities for the variable costs for a strategy sum to one, i.e. across each row. Production Option Low-Tech Subcontract High-Tech Variable Cost Fixed Cost Cost Probability Cost Probability Cost Probability $51000 $2.4 0.3 $2.9 $68000 $80000 $2.7 0.2 $3.1 0.4 0.2 $1.9 0.3 $3.7 0.6 $1.4 0.5 $0.4 0.5 The marketing department has determined that the new product line has a market forecast of 18100 units. What is the expected cost of the most economical of the three options? Note that since the probabilities are not the same for the decision alternatives, a decision tree, as below, can be used to structure the scenario. Specify as a whole number.
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