A Company Manufactures Specialty Pollution-Sensing Devices for the Offshore Oil

question 8

Essay

A company manufactures specialty pollution-sensing devices for the offshore oil industry. One particular device has reached maturity, and the company is considering whether to replace it with a newer model. Technologies have not changed dramatically, so the new device would have similar functionality to the existing one, but would be smaller and lighter in weight. The firm's three choices are: keep the old model; design a replacement device with internal resources; and purchase a new design from a firm that is one of its suppliers. The market for these devices will be either "receptive" or "neutral" of the replacement model. The financial estimates are as follows: Keeping the old design will yield a profit of $6 million dollars. Designing the replacement internally will yield $10 million if the market is "receptive," but a $3 million loss if the market is "neutral." Acquiring the new design from the supplier will profit $4 million under "receptive," $1 million under "neutral." The company feels that the market has a 70% chance of being "receptive" and a 30% chance of being "neutral." Draw the appropriate decision tree. Calculate expected value for all courses of action. What action yields the highest expected value?

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Definitions:

Neurotrophic Factors

Proteins that support the growth, survival, and differentiation of developing and mature neurons.

Neural Circuits

Networks of neurons interconnected to perform specific functions within the nervous system.

Glial Cells

Cells in the nervous system that support, protect, and nourish neurons, playing a key role in maintaining homeostasis and forming myelin.

Brain Tissue

Comprises various cells, including neurons and glial cells, responsible for processing and transmitting information throughout the body.