Dawson Electronics is a manufacturer of high-tech control modules for lawn sprinkler systems. Denise, the CEO, is trying to decide if the company should develop one of two potential new products, the Water Saver 1000 or the Greener Grass 5000. With each product, Dawson can capture a bigger market share if it chooses to expand capacity by buying additional machines. Given different demand scenarios, their probabilities of occurrence, and capacity expansion versus no change in capacity, the potential sales of each product are summarized in Table 5.50. Table 5.5 Demand and Sales Information for Dawson Electronics Low Demand Medium Demand High Demand Low Demand Medium Demand High Demand Water Saver 1000 Dollar Sales ($1,000) With Capacity Expansion 1,000 2,000 3,000 700 Greener Grass 5000 Dollar Sales ($1,000) 1,000 2,000 2,500 Without Capacity Expansion 3,000 5,000 1,000 2,000 3,000 Probability of Occurrence 0.25 0.50 0.25 0.25 0.50 0.25 a. What is the expected payoff for Water Saver 1000 and the Greener Grass 5000, with and without capacity expansion? b. Which product should Denise choose to produce, and with which capacity expansion option?

Dawson Electronics is a manufacturer of high-tech control modules for lawn sprinkler systems. Denise, the CEO, is trying to decide if the company should develop one of two potential new products, the Water Saver 1000 or the Greener Grass 5000. With each product, Dawson can capture a bigger market share if it chooses to expand capacity by buying additional machines. Given different demand scenarios, their probabilities of occurrence, and capacity expansion versus no change in capacity, the potential sales of each product are summarized in Table 5.50. Table 5.5 Demand and Sales Information for Dawson Electronics Low Demand Medium Demand High Demand Low Demand Medium Demand High Demand Water Saver 1000 Dollar Sales ($1,000) With Capacity Expansion 1,000 2,000 3,000 700 Greener Grass 5000 Dollar Sales ($1,000) 1,000 2,000 2,500 Without Capacity Expansion 3,000 5,000 1,000 2,000 3,000 Probability of Occurrence 0.25 0.50 0.25 0.25 0.50 0.25 a. What is the expected payoff for Water Saver 1000 and the Greener Grass 5000, with and without capacity expansion? b. Which product should Denise choose to produce, and with which capacity expansion option?

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

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Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
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