An Operations Manager's Staff Has Compiled the Information Below for Four

question 74

Essay

An operations manager's staff has compiled the information below for four manufacturing alternatives (E, F, G, and H) that vary by production technology and the capacity of the machinery. All choices enable the same level of total production and have the same lifetime. The four states of nature represent four levels of consumer acceptance of the firm's products. Values in the table are net present value of future profits in millions of dollars. Forecasts indicate that there is a 0.1 probability of acceptance level 1, 0.2 chance of acceptance level 2, 0.4 chance of acceptance level 3, and 0.3 change of acceptance level 4.
States of Nature
$$\begin{array} { | l | c | c | c | c | } \hline & 1 & 2 & 3 & 4 \\\hline \text { Alternative } \mathrm { E } & 50 & 50 & 70 & 60 \\\hline \text { Alternative } \mathrm { F } & 30 & 50 & 80 & 130 \\\hline \text { Alternative } \mathrm { G } & 70 & 80 & 70 & 60 \\\hline \text { Alternative } \mathrm { H } & - 140 & - 10 & 150 & 220 \\\hline\end{array}$$ Using the criterion of expected monetary value, which production alternative should be chosen?

---

Definitions:

0.1

A decimal number representing one-tenth, highlighting the concept of division in the decimal system.

Centi-

A prefix in the metric system denoting one hundredth (1/100) of a unit.

1/100

A numerical representation often used to denote one percent or a fraction of a whole.

Milli-

A prefix in the metric system denoting a factor of one thousandth (1/1000) of the unit it precedes.