AD 616 UCI Enterprise Risk Analysis Video Tech Case Questions

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AD 616: Enterprise Risk Analytics Assignment 5 What to submit? Please submit (i) a word file explaining in detail your answers to each question (you can use screenshots of the R to explain your answers) AND (ii) R file with a picture of the decision tree. For each question, make sure you develop the model and present the simulation results – R file should be self-explanatory. The assessment of your work will include both the accuracy and the clarity of your word file and the R File. 1. Video Tech is considering marketing one of two new video games for the coming Holiday season1: Battle Pacific or Space Pirates. Battle Pacific is a unique game and appears to have no competition. Estimated profits (in thousands of dollars) under high, medium, and low demand are as follows: Battle Pacific Profit Probability High $1000 0.2 Demand Medium $700 0.5 Low $300 0.3 Video Tech is optimistic about its Space Pirates game. However, the concern is that profitability will be affected by a competitor’s introduction of a video game viewed as similar to Space Pirates. Estimated profits (in thousands of dollars) with and without competition are as follows: Space Pirates With Competition Profit Probability Space Pirates Without Competition Profit Probability High $800 0.3 Demand Medium $400 0.4 Low $200 0.3 High Demand Medium Low $1600 0.5 $800 0.3 $400 0.2 For planning purposes, Video Tech believes there is a 0.6 probability that its competitor will produce a new game similar to Space Pirates. Given this probability of competition, the director of planning recommends marketing the Battle Pacific video game. Using expected value, what is your recommended decision and what is the expected profit? 1This problem is adapted from Camm et al., Essentials of Business Analytics, Chapter 12, pp. 586 – 587, Exercise 8, 2015, Cengage Learning. 2. Reconsider the problem in Question 1. Suppose that the profits (in thousands of dollars) are uncertain. For Battle Pacific: Page | 1 • • • When demand is high, the profit is normally distributed with mean 1000 and standard deviation 100. When demand is medium, the profit is normally distributed with mean 700 and standard deviation 70. When demand is low, the profit is normally distributed with mean 300 and standard deviation 30. For Space Pirates with competition: • • • When demand is high, the profit is normally distributed with mean 800 and standard deviation 80. When demand is medium, the profit is normally distributed with mean 400 and standard deviation 40. When demand is low, the profit is normally distributed with mean 200 and standard deviation 20. For Space Pirates without competition: • • • When demand is high, the profit is normally distributed with mean 1600 and standard deviation 160. When demand is medium, the profit is normally distributed with mean 800 and standard deviation 80. When demand is low, the profit is normally distributed with mean 400 and standard deviation 40. Incorporate this information to your decision tree. What is the probability that the expected profit will be less than $724.000? 3. A company must decide whether to manufacture a component part in its plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): Decision Alternative Manufacture,d1 Purchase, d2 Low Demand, s1 -20 10 State of Nature Medium Demand,s2 40 45 High Demand,s3 100 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. Use a decision tree to recommend a decision. b. A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(F|s1) = 0.10 P(U|s1) =0.90 P(F|s2) = 0.40 P(U|s2) = 0.60 Page | 2 P(F|s3) = 0.60 P(U|s3) = 0.40 What is the probability that the market research report will be unfavorable? c. What is the company’s optimal decision strategy? d. What is the expected value of the market research information? Page | 3 AD616 Individual Assignment 5 Yu Wang Question 1 sh Th is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Code: This study source was downloaded by 100000765850527 from CourseHero.com on 06-10-2021 03:48:34 GMT -05:00 https://www.coursehero.com/file/68428063/AD616-Assignment5docx/ is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Answer: sh Th Based on the decision tree shown below, I suggest the Video Tech do marketing on Space Pirates as it is forecasted to have a higher Expected Monetary Value (EMV) with $724,000 compared to the EMV of Battle Pacific $640,000. This study source was downloaded by 100000765850527 from CourseHero.com on 06-10-2021 03:48:34 GMT -05:00 https://www.coursehero.com/file/68428063/AD616-Assignment5docx/ Question 2 Answer is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Code sh Th The probability that the expected profit will be less than $724.000 is 57.19% This study source was downloaded by 100000765850527 from CourseHero.com on 06-10-2021 03:48:34 GMT -05:00 https://www.coursehero.com/file/68428063/AD616-Assignment5docx/ Question 3 a. Th Answer is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Code b. sh The EMV of purchasing from another is higher than it of manufacture, so I recommend the company purchase the component from a supplier to earn more profit. This study source was downloaded by 100000765850527 from CourseHero.com on 06-10-2021 03:48:34 GMT -05:00 https://www.coursehero.com/file/68428063/AD616-Assignment5docx/ The probability that the market research report will be unfavorable is 64.5% c. sh Th is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Code Answer This study source was downloaded by 100000765850527 from CourseHero.com on 06-10-2021 03:48:34 GMT -05:00 https://www.coursehero.com/file/68428063/AD616-Assignment5docx/ After conducting the market research, the best strategy for the company is manufacturing the component by themselves when the potential demand for the product is favorable, or purchasing the component when the potential demand for the product is unfavorable. d. sh Th is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m the expected value of the market research information is $64.6k - $40.25k = $24,350 This study source was downloaded by 100000765850527 from CourseHero.com on 06-10-2021 03:48:34 GMT -05:00 https://www.coursehero.com/file/68428063/AD616-Assignment5docx/ Powered by TCPDF (www.tcpdf.org)
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