Assume that the Wisconsin Cheese Factory currently operates a large facility in Madison, WI. The owner, however, is concerned about concentration of risk and has decided to open up two new facilities to lessen that concentration, one in St. Cloud, MN, and the other in Iowa City, IA. Total production, while slightly less profitable overall because of additional operational costs, remains the same, with 1/3 at each location. This action is an example of _______. profit maximization loss reduction loss prevention risk avoidance

Assume that the Wisconsin Cheese Factory currently operates a large facility in Madison, WI. The owner, however, is concerned about concentration of risk and has decided to open up two new facilities to lessen that concentration, one in St. Cloud, MN, and the other in Iowa City, IA. Total production, while slightly less profitable overall because of additional operational costs, remains the same, with 1/3 at each location. This action is an example of _______. profit maximization loss reduction loss prevention risk avoidance

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 46P

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Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?
Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?
Phillip Witt, president of Witt Input Devices, wishesto create a portfolio of local suppliers for his new line of keyboards.As the suppliers all reside in a location prone to hurricanes,tornadoes, flooding, and earthquakes, Phillip believes thatthe probability in any year of a " super-event" that might shutdown all suppliers at the same time for at least 2 weeks is 3%.Such a total shutdown would cost the company approximately$400,000. He estimates the " unique-event" risk for any of thesuppliers to be 5%. Assuming that the marginal cost of managingan additional supplier is $15,000 per year, how many suppliersshould Witt Input Devices use? Assume that up to three nearlyidentical local suppliers are available.
II. + James Scott is considering the possibility of opening a small outfit shop on Sta. Maria District, a few blocks from St. Green Ville College. She has located on a mall that attracts students. To open a small shop, medium sized shop, or no shop at all are her options. The market can be good, average, or bad. The probabilities for these three possibilities are 30% for good market, 50% for an average market, and 20% for bad market. The profit or loss for the said market conditions are given in the table below; ALTERNATIVE Small Shop Medium Sized Shop No Shop GOOD 150,000 200,000 0 AVERAGE 50,000 70,000 0 a) Calculate the Expected Value of Perfect Information (EVPI) b) What do you recommend? BAD -80,000 -120,000 0
A circus is scheduled to appear in a city on a given date. The profits obtained are heavily dependent on the weather which can be classified as "good" or" bad". The circus owners may choose to setup operations in a large open field that is centrally located or rent a small building to stage a small version of the circus. The small building is not expected to be adversely affected by bad weather – thus will not affect the circus for it is well secure and has covered parking for the guests. The following shows the profits of the options and states of nature: States of nature Decision alternatives Set up in field Rent small building | Probability Good Bad $14,500 $5,000 -$15,000 $4,000 P(G)=0.5 P(B)=0.5 The circus owners may choose to delay the decision until the day before the event is due. At this time they can obtain the one-day weather report (free) which is usually reliable. This delay will however increase their set up cost by $1000.00 or if they choose to rent, the rental cost will…
Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. He has a total of 3 suppliers available. Philip believes that the probability of a super-event that might shut down all suppliers at the same time to be 3.0%. Such a shutdown would cost company 5 million dollars. He estimates the unique event risk for any supplier to be 5.0 %. Assuming that managing an additional supplier is 1 thousand dollars, how many suppliers should Philip use? Assume that suppliers are identical. (Only enter a number without any units.
Civil engineering consulting fi rms that provide ser-vices to outlying communities are vulnerable to a number of factors that affect the fi nancial conditionof the communities, such as bond issues and real estate developments. A small consulting fi rm en-tered into a fi xed-price contract with a large devel-oper, resulting in a stable income of $260,000 per year in years 1 through 3. At the end of that time, a mild recession slowed the development, so the par-ties signed another contract for $190,000 per year for 2 more years. Determine the present worth of thetwo contracts at an interest rate of 10% per year.
The Terraco Motor Company has produced a lightweight, all-terrain vehicle code-named “J99 Terra” for the military. The company is now planning to sell the Terra to the public. It has five plants that manufacture the vehicle and four regional distribution centers. The company is unsure of public demand for the Terra, so it is considering reducing its fixed operating costs by closing one or more plants, even though it would incur an increase in transportation costs. The relevant costs for the problem are provided in the following table. The transportation costs are per thousand vehicles shipped; for example, the cost of shipping 1,000 vehicles from plant 1 to warehouse C is $32,000. Transportation Costs ($1,000s) to Warehouse Annual Production Capacity Annual Fixed Operating Costs From Plant A B C D 1 $56 $21 $32 $65 12,000 $2,100,000 2 18 46 7 35 18,000 850,000 3 12 71 41 52 14,000 1,800,000…
The Terraco Motor Company has produced a lightweight, all-terrain vehicle code-named “J99 Terra” for the military. The company is now planning to sell the Terra to the public. It has five plants that manufacture the vehicle and four regional distribution centers. The company is unsure of public demand for the Terra, so it is considering reducing its fixed operating costs by closing one or more plants, even though it would incur an increase in transportation costs. The relevant costs for the problem are provided in the following table. The transportation costs are per thousand vehicles shipped; for example, the cost of shipping 1,000 vehicles from plant 1 to warehouse C is $32,000. Transportation Costs ($1,000s) to Warehouse from plant A B C D Annual Production Capacity Annual Fixed Operation Costs 1 56 21 32 65 12,000 2,100,000 2 18 46 7 35 18,000 850,000 3 12 71 41 52 14,000 1,800,000 4 30 24 61 28 10,000 1,100,000 5 45…
Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. Suppose that Phillip is willing to use one local supplier and up to two more located in other territories within the country. This would reduce the probability of a "super-event" that might shut down all suppliers at the same time at least 2 weeks to 0.5%, but due to increased distance the annual costs for managing each of the distant suppliers would be $25,000 (still $15 comma 000 for the local supplier). A total shutdown would cost the company approximately $400,000. He estimates the "unique-event" risk for any of the suppliers to be 5%. Assuming that the local supplier would be the first one chosen, how many suppliers should Witt Input Devices use? Find the EMV for alternatives using 1, 2, or 3 suppliers. EMV(1)equals=$ (Enter your response rounded to the nearest wholenumber.) EMV(2)equals=$ (Enter your response rounded to the nearest…
Suppose that an aircraft manufacturer desires to make a preliminary estimate of the cost of building a 600-MW fossil-fuel plant for the assembly of its new long-distance aircraft. It is known that a 200-MW plant cost $100 million 20 years ago when the approximate cost index was 400, and that cost index is now 1,200. The cost-capacity factor for a fossil-fuel power plant is 0.79.
PROBLEM 8 Jim Huang and Roderick Wheeler were sales representatives in a computer store at a shopping mall in Arlington, Virginia, when they got the idea of going into business in the burgeoning and highly competitive microcomputer market. Jim went to Taiwan over the summer to visit relatives and made a contact with a new firm producing display monitors for microcomputers, which was looking for an East Coast distributor in America. Jim made a tentative deal with the firm to supply a maximum of 500 monitors per month and called Rod to see if he could find a building they could operate out of and some potential customers. Rod went to work. The first thing he did was send bids to several universities in Maryland, Virginia, and Pennsylvania for contracts as an authorized vendor for monitors at the schools. Next, he started looking for a facility to operate from. Jim and his operation would provide minor physical modifications to the monitors, including some labeling,…