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Unformatted text preview: s. S1, S2 and S3 characterize high, medium and low demand
respectively. The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.
48 monthly sales reports are randomly selected. These monthly sales reports showed 15
months with high demand, 28 months with medium demand, and 5 months with low demand.
12 of the 15 months with high demand had favorable weather conditions. 14 of the 28 months
with medium demand had favorable weather conditions. Only 1 of the 5 months with low
demand had favorable weather conditions.
If the weather conditions are poor, determine which manufacturing strategy the company
should implement.
Strategy 2 (EMV)1 = (.1364)(110) + (.6818)(80) + (.1818)(70) = 82.28
(EMV)2 = (.1364)(60) + (.6818)(120) + (.1818)(50) = 99.09
Since 99.09 > 82.28, choose strategy 2. AACSB: Analytic Skills
Bloom's: Application
Difficulty: Hard
Learning Objective: 2
Topic: Posterior Analysis 11943 Chapter 01  An Introduction to Business Statistics 74. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2, and S3 characterize high, medium, and low demand
respectively. The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.
48 monthly sales reports are randomly selected. These monthly sales reports showed 15
months with high demand, 28 months with medium demand, and 5 months with low demand.
12 of the 15 months with high demand had favorable weather conditions. 14 of the 28 months
with medium demand had favorable weather conditions. Only 1 of the 5 months with low
demand had favorable weather conditions. Based on this information, the prior probabilities
have been revised. If the weather conditions are favorable, P(S1) = .4286, P(S2) = .5357, and
P(S3) = .0357, and if the weather conditions are poor, P(S1) = .1364, P(S2) = .6818, and P(S3)
= .1818. It is also determined that the probability of favorable weather is 0.56 and the
probability of poor weather is 0.44.
Carry out a preposterior analysis and using the revised probabilities, determine the expected
monetary value when the weather conditions are favorable and determine the expected
monetary value when the weather conditions are poor.
EPS = 95.5
If the weather conditions are favorable, then the following expected monetary value
calculations are performed.
(EMV)1 = (.4286)(110) + (.5357)(80) + (.0357)(70) = 92.50
(EMV)2 = (.4286)(60) + (.5357)(120) + (.0357)(50) = 91.79. Since 92.5 > 91.79, choose
strategy 1.
If the weather conditions are poor, then the following expected monetary value calculations
are performed:
(EMV)1 = (.1364)(110) + (.6818)(80) + (.1818)(70) = 82.28
(EMV)2 = (.1364)(60) + (.6818)(120) + (.1818)(50) = 99.09. Since 99.09 > 82.28, choose
strategy 2. AACSB: Analytic Skills
Bloom's: Application
Difficulty: Hard
Learning Objective: 2
Topic: Posterior Analysis 11944 Chapter 01  An Introduction to Business Statistics 75. The alternatives 1 and 2 in the following payoff table represent the two possible
manufacturing strategies that the EKA manufacturing company can adopt. The level of
demand affects the success of both strategies. The states of nature (SI) represent the levels of
demand for the company products. S1, S2, and S3 characterize high, medium, and low demand
respectively. The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.
48 monthly sales reports are randomly selected. These monthly sales reports showed 15
months with high demand, 28 months with medium demand, and 5 months with low demand.
12 of the 15 months with high demand had favorable weather conditions. 14 of the 28 months
with medium demand had favorable weather conditions. Only 1 of the 5 months with low
demand had favorable weather conditions. Based on this information, the prior probabilities
have been revised. If the weather conditions are favorable, P(S1) = .4286, P(S2) = .5357, and
P(S3) = .0357, and if the weather conditions are poor, P(S1) = .1364, P(S2) = .6818, and P(S3)
= .1818. It is also determined that the probability of favorable weather is 0.56 and the
probability of poor weather is 0.44.
Determine the expected value of sample information. What is the maximum amount that the
company is willing to pay for the weather information and the additional analysis?
EVSI = 0.5 or $500
If the weather conditions are favorable, then the following expected monetary value
calculations are performed.
(EMV)1 = (.4286)(110) + (.5357)(80) + (.0357)(70) = 92.50
(EMV)2 = (.4286)(60) + (.5357)(120) + (.0357)(50) = 91.79. Since 92.5 > 91.79, choose
strategy 1.
If the weather conditions are poor, then the following expected monetary val...
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This document was uploaded on 01/20/2014.
 Winter '14

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