The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company’s president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.40, and 0.40, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firm’s planners developed the following profit forecasts for the medium- and large-scale expansion projects. Medium-Scale Expansion Profit Large-Scale Expansion Profit x f(x) y f(y) Demand Low 50 0.20 0 0.20 Medium 150 0.40 100 0.40 High 200 0.40 300 0.40 (a) Compute the expected value for the profit associated with the two expansion alternatives. Round your answers to whole numbers, if needed. EV Medium-Scale Large-Scale Which decision is preferred for the objective of maximizing the expected profit? - Select your answer -Medium-ScaleLarge-ScaleItem 3 (b) Compute the variance for the profit associated with the two expansion alternatives. Round your answers to whole numbers, if needed. Var Medium-Scale Large-Scale Which decision is preferred for the objective of minimizing the risk or uncertainty? - Select your answer -Medium-ScaleLarge-ScaleItem 6

The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company’s president must determine whether to make the...

The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company’s president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.40, and 0.40, respectively. Letting
x
and
y
indicate the annual profit in thousands of dollars, the firm’s planners developed the following profit forecasts for the medium- and large-scale expansion projects.

		Medium-Scale Expansion Profit	Large-Scale Expansion Profit
		x		*f(x)*	y		*f(y)*
Demand	Low	50		0.20	0		0.20
Medium	150		0.40	100		0.40
High	200		0.40	300		0.40

(a)

Compute the expected value for the profit associated with the two expansion alternatives. Round your answers to whole numbers, if needed.

	EV
Medium-Scale
Large-Scale

Which decision is preferred for the objective of maximizing the expected profit?

- Select your answer -Medium-ScaleLarge-ScaleItem 3

(b)

Compute the variance for the profit associated with the two expansion alternatives. Round your answers to whole numbers, if needed.

	Var
Medium-Scale
Large-Scale

Which decision is preferred for the objective of minimizing the risk or uncertainty?

- Select your answer -Medium-ScaleLarge-ScaleItem 6

Jun 01, 2022

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