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A Company Is Planning a Plant Expansion

question 115

Multiple Choice

A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is an 69% chance that demand for their products will be high and a 31% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 63% chance that the customers will like the products and a 37% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is a 92% chance that demand will be high for the products. If the survey is unfavorable there is only a 30% chance that the demand will be high. The following decision tree has been built for this problem. The company has computed that the expected monetary value of the best decision without sample information is 154.35 million. What is the EVSI for this problem (in $ million) ?

Definitions:

Electronic Commerce

The buying and selling of goods and services through the internet or other electronic systems.

Joint Innovations

Collaborative efforts between companies or individuals to create new products, services, or technologies.

Economic Order Quantity

The optimal quantity of inventory to order that minimizes the total costs associated with ordering and holding inventory.

Carrying Costs

Expenses associated with holding inventory, such as storage, insurance, and opportunity costs, until it is sold or used in production.