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Managing Pricing Decisions Essay

443 words - 2 pages

DECISION MAKING THEORY AND TOOLS

PROBLEM 1:

The following information is for below questions:

*PV for profits ($000)

i. The maximax strategy would be:
Answer: buy with value = RM80,000

ii. The maximin strategy would be:
Answer: lease with value = RM50,000

iii. The minimax regret strategy would be:
Answer: lease

iv. If P(high) is 0.60, the choice for maximum expected value would be:
Answer: rent (EMV => RM70,000 x 0.6 + RM30,000 x 0.4 = RM54,000)

PROBLEM 2

A manager is quite concerned about the recent deterioration of a section of the roof on a building that houses her ...view middle of the document...

If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C. If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C.
i. Draw a decision tree for this problem.
ii. Using expected monetary value, which alternative should be chosen?

Answer:

LINEAR PROGRAMMING

A firm wants to determine how many units of each of two products (products X and Y) they should produce in order to gain profit. The profit from making a unit of product X is RM100 and the profit from making a unit of product Y is RM80. The firm can sell any amount of either product; it is limited by its total labor hours and total machine hours available. The total labor hours per week are 800 hours. Product X takes 4 hours of labor per unit and Product Y takes 2 hours of labor per unit. The total machine hours available are 750 hours per week. Product X takes 1 machine hour per unit and Product Y takes 5 machine hours per unit.
a. Formulate the linear programming constraints and the objective functions for this problem.
b. Draw the graph for this linear programming problem.
c. Provide solution for the best combination of product X and Y, and show the maximum profit for this problem. 

Answer:
Objective function: Maximize Z = $100 X + $80 Y
Subject to:
4 X + 2 Y ≤ 800
X + 5 Y ≤ 750

Solution:
X = 138.89
Y = 122.22
Z = $23,666.67

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