A Toy Manufacturer Has Three Different Mechanisms That Can Be

question 95

Essay

A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows.
$$\begin{array} { | l | r | r | r | } \hline \text { Profit } & { \text { Light } } & \text { Medium } & { \text { Heavy } } \\\hline \text { Probability } & 0.18 & 0.52 & 0.3 \\\hline \text { Wind-up } & 70 & 20 & 120 \\\hline \text { Pneumatic } & 80 & 90 & 100 \\\hline \text { Electrical } & 50 & 150 & 30 \\\hline\end{array}$$ a. What is the EMV of each decision alternative?
b. Which action should be selected?
c. What is the expected value with perfect information?
d. What is the expected value of perfect information?

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Definitions:

Empirical Data

Information obtained through observation or experimentation rather than theory or pure logic.

Crystal Ball

A metaphorical term often used to describe the act of predicting future events with certainty.

Project Management

The practice of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria.

Analytical Approach

A method of problem solving that involves breaking down a system into its smallest parts and understanding how those parts relate to one another.