Seneca Hill Winery recently purchased land for the purpose of establishing a new vineyard. Management is considering two varieties of white grapes for the new vineyard: Chardonnay and Riesling. The Chardonnay grapes would be used to produce a dry Chardonnay wine, and the Riesling grapes would be used to produce a semidry Riesling wine. It takes approximately four years from the time of planting before new grapes can be harvested. This length of time creates a great deal of uncertainty concerning future demand and makes the decision concerning the type of grapes to plant difficult. Three possibilities are being considered: Chardonnay grapes only; Riesling grapes only; and both Chardonnay and Riesling grapes. Seneca management decided that for planning purposes it would be adequate to consider only two demand possibilities for each type of wine: strong or weak. With two possibilities for each type of wine it was necessary to assess four probabilities. With the help of some forecasts in industry publications management made the following probability assessments. Chardonnay Demand Weak Strong Riesling Demand Weak Strong 0.05 0.50 0.25 0.20 Revenue projections show an annual contribution to profit of $40,000 if Seneca Hill only plants Chardonnay grapes and demand is weak for Chardonnay wine, and $90,000 if the company only plants Chardonnay grapes and demand is strong for Chardonnay wine. If Seneca Hill only plants Riesling grapes, the annual profit projection is $45,000 if demand is weak for Riesling grapes and $65,000 if demand is strong for Riesling grapes. If Seneca plants both types of grapes, the annual profit projections are as shown in the following table. Riesling Demand Chardonnay Demand Weak Strong $42,000 $60,000 $46,000 $80,000 Weak Strong (a) What is the decision to be made, what is the chance event, and what is the consequence? The decision to be made is ---Select--- The chance event is ---Select--- Identify the alternatives for the decisions and the possible outcomes for the chance events. The alternatives for the decisions are ---Select--- The possible outcomes for the chance events are ---Select--- The consequence is ---Select--- (b) Develop a decision tree. (Enter monetary values in thousands and percentages in decimal form.) Decision Tree Description Weak for Chardonnay Plant Chardonnay 2 Strong for Chardonnay Plant both grapes 1 3 Plant Riesling Weak Chardonnay, Weak Riesling Weak Chardonnay, Strong Riesling Strong Chardonnay, Weak Riesling Strong Chardonnay, Strong Riesling Weak for Riesling 4 Strong for Riesling

Seneca Hill Winery recently purchased land for the purpose of establishing a new vineyard. Management is considering two varieties of white grapes for the new vineyard: Chardonnay and Riesling. The Chardonnay grapes would be used to produce a dry Chardonnay wine, and the Riesling grapes would be used to produce a semidry Riesling wine. It takes approximately four years from the time of planting before new grapes can be harvested. This length of time creates a great deal of uncertainty concerning future demand and makes the decision concerning the type of grapes to plant difficult. Three possibilities are being considered: Chardonnay grapes only; Riesling grapes only; and both Chardonnay and Riesling grapes. Seneca management decided that for planning purposes it would be adequate to consider only two demand possibilities for each type of wine: strong or weak. With two possibilities for each type of wine it was necessary to assess four probabilities. With the help of some forecasts in industry publications management made the following probability assessments. Chardonnay Demand Weak Strong Riesling Demand Weak Strong 0.05 0.50 0.25 0.20 Revenue projections show an annual contribution to profit of $40,000 if Seneca Hill only plants Chardonnay grapes and demand is weak for Chardonnay wine, and $90,000 if the company only plants Chardonnay grapes and demand is strong for Chardonnay wine. If Seneca Hill only plants Riesling grapes, the annual profit projection is $45,000 if demand is weak for Riesling grapes and $65,000 if demand is strong for Riesling grapes. If Seneca plants both types of grapes, the annual profit projections are as shown in the following table. Riesling Demand Chardonnay Demand Weak Strong $42,000 $60,000 $46,000 $80,000 Weak Strong (a) What is the decision to be made, what is the chance event, and what is the consequence? The decision to be made is ---Select--- The chance event is ---Select--- Identify the alternatives for the decisions and the possible outcomes for the chance events. The alternatives for the decisions are ---Select--- The possible outcomes for the chance events are ---Select--- The consequence is ---Select--- (b) Develop a decision tree. (Enter monetary values in thousands and percentages in decimal form.) Decision Tree Description Weak for Chardonnay Plant Chardonnay 2 Strong for Chardonnay Plant both grapes 1 3 Plant Riesling Weak Chardonnay, Weak Riesling Weak Chardonnay, Strong Riesling Strong Chardonnay, Weak Riesling Strong Chardonnay, Strong Riesling Weak for Riesling 4 Strong for Riesling

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section: Chapter Questions

Problem 69P: The Tinkan Company produces one-pound cans for the Canadian salmon industry. Each year the salmon...

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