Samsung camera has 2 design options for its new line of camera products. Design Option A: has a 0.9 probability of selling 61,000 cameras and a 0.1 probability of selling 63,000 cameras. The design will cost $1,000,000. Design Option B: has an alpha 0.8 probability of selling 68,000 good cameras and an alpha 0.2 probability of selling 62,000 good cameras. The design will cost $1,350,000. In addition, the company needs to use expensive screens which causes an additional manufacturing cost of $250,000 for this design.
In any option, each camera will cost $75 to produce and the selling price for each good camera is $150.
1. Draw the decision tree appropriate to the alternatives and outcomes stated.
2. Using the decision tree and EMV, what is their best choice? (Show your calculation for profits for each probability/option and EMV)
Question 5. Jollibee have fond memories of ice skating at a local park. An artist has captured the experience in a drawing and hopes to reproduce it and sell framed copies to current and former residents. He thinks he can sell 400 copies of the refined version at $125 each if the market is good. If the market is not good, he will sell only 300 at $90 each. He can make a deluxe version of the same drawing instead. He feels that if the market is good, he can sell 500 copies of the deluxe version at $100 each. If the market is not good, he will sell only 400 copies at $70 each. In either case, production costs will be approximately $35,000.
Required
1. What should he do if he believes there is a 50% probability of a good market? Why?
1 answer