The sensitivity to the problem in terms of the probability estimate of 0.35. Introduction : Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

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Answer 1

Question

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

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1. Procter, president of a food company, must decide whether to market a new breakfast drink which the R and D division has developed. A special meeting devoted to this topic yields the following information: ● The marketing vice-president has defined two possible outcomes for the success of this product; either the public will accept the product, or it will not. She believes that the product will be accepted with probability 0.1. The cost engineers believe that if the product is marketed and accepted, the company will net $100,000 yearly. If the product is rejected, however, the company will suffer a net loss of $20,000 yearly. If Procter decides not to market the product, her company will neither accrue more cost nor make any profit on this product. ● Procter always makes decisions based on the expected value of the outcomes. A. What is the best strategy in this case? B. Compute for EVPI.

Answer 2

Question

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

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Answer 3

Question

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

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Answer 4

Question

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

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Answer 5

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

Answer 6

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

Answer 7

Chapter 5.S, Problem 8P

a)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.35.

Introduction: Decision making is the procedure of selecting choices by identifying a decision, obtaining information and evaluating alternative resolutions. Always, step-by-step decision making process can help to make more deliberate, and thoughtful decisions in the organization.

Answer 8

a)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 1

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Answer 13

Conclusion

It is given that the percentage is 0.35 which is less than .4643. Hence, renew should be selected.

Answer 14

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

Answer 15

b)

Summary Introduction

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

Answer 16

b)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Answer 17

b)

Expert Solution

Answer 18

b)

Expert Solution

Answer 19

Expert Solution

Answer 20

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

Determine the sensitivity of the problem:

The graph shown below contains the range of values of probability of approved motel where the alternative is optimal:

If the value is low, renewal is best with the highest expected value.

If the value is high, relocate is best with the highest expected value

Operations Management, Chapter 5.S, Problem 8P , additional homework tip 2

Slope of renew:

Slope=500,000−4,000,000=−3,500,000

Equation for renew:

4,000,000−3,500,000P

Slope of relocate:

Slope=5,000,000−100,000=4,900,000

Equation for renew:

100,000+4,900,000P

Determine the intersection between two lines:

It can be determined by equaling the equations of renew and relocate.

4,000,000−3,500,000P=100,00+4,900,000P−3,500,000P−4,900,000P=100,000−4,000,000−8,400,000P=−3,900,000

P=−3,900,000−8,400,000=0.4643

Optimal ranges are as follows:

Renew:

P(Approved)=0 to 0.4643

Relocate:

P(Approved)=0.4643 to 1.00

Answer 21

Conclusion

Conclusion: It is given that the percentage is 0.45 which is less than .4643. Hence, renew should be selected.

Answer 22

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

Answer 23

c)

Summary Introduction

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

Answer 24

c)

Expert Solution

Answer to Problem 8P

The management should renew the motel rather than relocating.

Answer 25

c)

Expert Solution

Answer 26

c)

Expert Solution

Answer 27

Expert Solution

Answer 28

Explanation of Solution

Given information:

It is given that the lease of theme part is about to expire. The management should decide whether to renew the lease for another 10 years or relocate the motel. The details about the two alternatives are as follows:

Options	Motel approved	Motel rejected
Renew	$500,000	$4,000,000
Relocate	$5,000,000	$100,000

The estimated payoff except for $4 million and the probability of approval is 0.35.

Determine the payoff:

Renew:

Renew=0.35(500,000)+0.65(4,000,000)

X should be plugged in instead of 4,000,000 in the above equation

Renew=0.35(500,000)+0.65x

Relocate:

Relocate=0.35(5,000,000)+0.65(100,000)=1,750,000+65,000=1,815,000

Equal the equations of renew and relocate to solve x:

Equations of renew and relocate should be equaled to determine the value of x.

0.35(500,000)+0.65x=$1,815,000175,000+0.65x=$1,815,0000.65x=$1,815,000−175,000

0.65x=1,640,000x=1,640,0000.65=2,523,077

The original decisions at payoff is $4,000,000 should be decreased to $2,523,077 for the decision to change from renew to relocate.

Answer 29

Conclusion

When x is $2,523,077, there would be indifference between renew and relocate.

When x is less than $2,523,077, the decision would be changed to relocate.

Answer 30

Ch. 5.8 - Explain the meaning of the phrase Hours versus...Ch. 5.8 - Prob. 1.2RQ Ch. 5.8 - Prob. 1.3RQ Ch. 5.8 - Prob. 1.4RQ Ch. 5.8 - Prob. 1.5RQ Ch. 5.S - Prob. 1DRQ Ch. 5.S - Prob. 2DRQ Ch. 5.S - Explain the term bounded rationality.Ch. 5.S - Prob. 4DRQ Ch. 5.S - Prob. 5DRQ

Concept explainers

Answer to Problem 8P

Explanation of Solution

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

Answer to Problem 8P

Explanation of Solution

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

Answer to Problem 8P

Explanation of Solution

Want to see more full solutions like this?

Chapter 5 Solutions

Concept explainers

Answer to Problem 8P

Explanation of Solution

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45. Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

Answer to Problem 8P

Explanation of Solution

To determine: The range of payoff for renew reject for the selected alternative. Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

Answer to Problem 8P

Explanation of Solution

Want to see more full solutions like this?

Chapter 5 Solutions

To determine: The sensitivity to the problem in terms of the probability estimate of 0.45.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.

To determine: The range of payoff for renew reject for the selected alternative.

Introduction: Decision-making is the process that helps to make decision. It is the process of choosing a best alternative by evaluating many alternatives.