Question
Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike
Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and the UPS strike takes place, the company will incur $60,000 in delay and shipping costs. If Sharp Outfits decides to ship the customer orders via UPS and no strike occurs, the company will incur $4000 in shipping costs. If Sharp Outfits decides to postpone shipping its customer orders via UPS, the company will incur $10,000 in delay costs regardless of whether UPS goes on strike. Let p represent the probability that UPS will go on strike and impact Sharp Outfits's shipments. Suppose now that, at a cost of $1000, Sharp Outfits can purchase information regarding the likelihood of a UPS strike in the near future. Based on similar strike threats in the past, the company assesses that the information will predict a strike with probability 0.24. In this case (information predicts strike), a strike will in fact occur with probability 0.469. In case the information predicts no strike, there is still a possibility of a strike with probability of 0.049. Without the information, the probability that UPS will go on strike is 0.15. According to the above information and the general information provided in the question, construct and solve a decision tree to identify the optimal decision for Sharp Outfits. What is the maximum amount that Sharp Outfits is willing to pay for the information?
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