Assignment 2: Probability Analysis

Category: Mathematics

Assignment 2: Probability Analysis

A General Manger of Harley-Davidson has to decide on the size of a new facility. The GM has narrowed the choices to two: large facility or small facility. The company has collected information on the payoffs. It now has to decide which option is the best using probability analysis, the decision tree model, and expected monetary value.

 

 

Options:

Facility

Demand Options

Probability

Actions

Expected Payoffs

         

Large

Low Demand

0.4

Do Nothing

($10)

 

Low Demand

0.4

Reduce Prices

$50

 

High Demand

0.6

 

$70

         

Small

Low Demand

0.4

 

$40

 

High Demand

0.6

Do Nothing

$40

 

High Demand

0.6

Overtime

$50

 

High Demand

0.6

Expand

$55

Determination of chance probability and respective payoffs:

Build Small:

 

Low Demand

0.4($40)=$16

High Demand

0.6($55)=$33

   

Build Large:

 

Low Demand

0.4($50)=$20

High Demand

0.6($70)=$42

Determination of Expected Value of each alternative
Build Small: $16+$33=$49
Build Large: $20+$42=$62

Click here for the Statistical Terms review sheet.

Submit your conclusion in a Word document to the M4: Assignment 2 Dropbox byWednesday, July 23, 2014.

 

 

 

 

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