A Toy Manufacturer Has Three Different Mechanisms That Can Be

question 38

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.
$$\begin{array} { | l | c | c | c | } \hline & \text { Light Demand } & \begin{array} { c } \text { Moderate } \\\text { Demand }\end{array} & \text { Heavy Demand } \\\hline \text { Probability } & 0.25 & 0.45 & 0.3 \\\hline \text { Wind-up action } & \$ 325,000 & \$ 190,000 & \$ 170,000 \\\hline \text { Pneumatic action } & \$ 300,000 & \$ 420,000 & \$ 400,000 \\\hline \text { Electrical action } & - \$ 400,000 & \$ 240,000 & \$ 800,000 \\\hline\end{array}$$
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:

Social Facilitation

The tendency for people to perform differently when in the presence of others than when alone, typically improving on well-practiced tasks.

Achievement Motivation

Factors that move people to seek success in academic settings.

Social Loafing

The tendency of individuals to exert less effort on a task when working in a group than when working alone.

Social Influence

Social influence encompasses the ways in which individuals change their behavior to meet the demands of a social environment.