You have from 9.30-12.30 to answer the following questions.
answer each question below and each question carries equal weight or
counts equally to your overall grade for the mid-term.
Jewel Equipment manufactures magnetic card readers for medical applications.
component of the card reader is the CPU (central processing unit).
reader can use two standard types of CPUs, Z-1 and Z-2.
Although the Z-1 and
Z-2 CPUs are identical in terms of the finished card reader’s functionality, for
complex technical reasons, the Z-1 works slightly better in Jewel’s manufacturing
process, resulting in fewer rejects and disruptions to the manufacturing process.
Jewel’s industrial engineers have estimated the benefits of Z-1 over Z-2 at about
Jewel is in the process of procuring a 3 month supply of CPUs.
Acme, a leading
manufacturer of CPUs, has offered to sell Jewel Z-2 CPUs at $35/unit, whereas Beta,
another CPU producer, has quoted Jewel a price of $38/unit for its Z-1 CPUs.
about to begin negotiations with a third firm, Condor, which only manufactures the Z-2
Assume for Question 1a and 1b that Acme and Beta have quoted firm prices.
In negotiating with Condor, what is Jewel’s BATNA? (2 points)
In negotiating with Condor, what is Jewel’s reservation price, i.e., the
most it will pay for Condor’s Z-2 CPU? (2 points)
Now assume that although Beta’s price is firm, your purchasing manager believes
that there is a 50% chance that she might be able to negotiate a 20% reduction from
Acme (to $28/unit).
How has Jewel’s BATNA changed? (2 points)
What is Jewel’s new reservation price, i.e., the most it will pay for
Condor’s Z-2 CPU?
Assume that Jewel makes decisions on the basis of Expected
Monetary Value (EMV), as per decision tree analysis (hint recall Carter Racing).
Condor’s largest customer, 40% of Condor’s sales, recently declared bankruptcy.
As a result, Condor has an excess supply of Z-2 CPUs.
If Condor is unable to sell its
supply of Z-2 CPUs to Jewel, Condor estimates that there is a 20% chance that they will