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Management Science BUS 340. Chapter 3 Problem 3-18. (a) What decision model should be used?. Answer: Ken Brown should use the Maximize Expected Monetary Value (EMV) model. (b) What is the optimal decision?.

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Management Science BUS 340

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Management ScienceBUS 340

Chapter 3

Problem 3-18

Kelly Devilbiss


(a) What decision model should be used?

Answer:

Ken Brown should use the Maximize

Expected Monetary Value (EMV) model.

Kelly Devilbiss


(b) What is the optimal decision?

Kelly Devilbiss


(c) Ken believes that the $300,000 figure for the Sub 100 with a favorable market is too high. How much lower would this figure have to be fore Ken to change his decision made in part (b)?

Solve for x:

.70x – 200,000(.30) = 145,000

.70x – 60,000 = 145,000

.70x = 205,000

205,000 / .70 = 292,857

Answer:

$292,857 (or $7,143 lower)

Kelly Devilbiss


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