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

question 110

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: (1)keep the old model, (2)design a replacement device with internal resources, (3)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 percent chance of being "receptive" and a 30 percent 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:

DSM

The Diagnostic and Statistical Manual of Mental Disorders, a handbook used by healthcare professionals as the authoritative guide to diagnosing mental disorders.

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The process by which a legal authority, such as a court, makes a decision or judgment regarding a particular issue or case.

Schizophrenia

A chronic and severe mental disorder that affects a person's thinking, feeling, and behavior, often characterized by delusions, hallucinations, and disordered thought.

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Professionals who study mental processes and behavior in humans and animals.