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An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin
Edition 13ISBN: 978-1439043271An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin
Edition 13ISBN: 978-1439043271 Exercise 7
The distance from Potsdam to larger markets and limited air service have hindered the town in attracting new industry. Air Express. a major overnight delivery service, is considering establishing a regional distribution center in Potsdam. However, Air Express will not establish the center unless the length of the runway at the local airport is increased. Another candidate for new development is Diagnostic Research. Inc. (DRI), a leading producer of medical testing equipment. DRI is considering building a new manufacturing plant. Increasing the length of the runway is not a requirement for DRI, but the planning commission feels that doing so will help convince DRI to locate their new plant in Potsdam. Assuming that the town lengthens the runway, the Potsdam planning commission believes that the probabilities shown in the following table are applicable: 
For instance, the probability that Air Express will establish a distribution center and DRI will build a plant is 0.30.
The estimated annual revenue to the town, after deducting the cost of lengthening the runway, is as follows:
If the runway expansion project is not conducted, the planning commission assesses the probability DRI will locate their new plant in Potsdam at 0.6; in this case, the estimated annual revenue to the town will be $450,000. If the runway expansion project is not conducted and DRI does not locate in Potsdam, the annual revenue will be $0 because no cast will have been incurred and no revenues will be forthcoming.
a. What is the decision to be made, what is the chance event, and what is the consequence?
b. Compute the expected annual revenue associated with the decision alternative to lengthen the runway.
c. Compute the expected annual revenue associated with the decision alternative not to lengthen the runway.
d. Should the town elect to lengthen the runway? Explain.
e. Suppose that the probabilities associated with lengthening the runway were as following:
What effect, if any, would this change in the probabilities wave on the recommended decision?
For instance, the probability that Air Express will establish a distribution center and DRI will build a plant is 0.30.
The estimated annual revenue to the town, after deducting the cost of lengthening the runway, is as follows:
If the runway expansion project is not conducted, the planning commission assesses the probability DRI will locate their new plant in Potsdam at 0.6; in this case, the estimated annual revenue to the town will be $450,000. If the runway expansion project is not conducted and DRI does not locate in Potsdam, the annual revenue will be $0 because no cast will have been incurred and no revenues will be forthcoming.
a. What is the decision to be made, what is the chance event, and what is the consequence?
b. Compute the expected annual revenue associated with the decision alternative to lengthen the runway.
c. Compute the expected annual revenue associated with the decision alternative not to lengthen the runway.
d. Should the town elect to lengthen the runway? Explain.
e. Suppose that the probabilities associated with lengthening the runway were as following:
What effect, if any, would this change in the probabilities wave on the recommended decision?
Explanation
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(a)Decision to be made: To lengthen or n...
An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin
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