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cd627 cd627
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6 years ago
A toy manufacturer makes stuffed kittens and puppies that have relatively lifelike motions. There are three different mechanisms which can be installed in these pets.
 
  These toys will sell for the same price regardless of the mechanism installed, but each mechanism has its own variable cost and setup cost. Profit, therefore, is dependent upon the choice of mechanism and upon the level of demand. The manufacturer has in hand a forecast of demand that suggests a 0.2 probability of light demand, a 0.45 probability of moderate demand, and a probability of 0.35 of heavy demand. Payoffs for each mechanism-demand combination appear in the table below.
 
  Demand Wind-up action Pneumatic action Electronic action
  Light 250,000 90,000 -100,000
  Moderate 400,000 440,000 400,000
  Heavy 650,000 740,000 780,000
 
  Construct the appropriate decision tree to analyze this problem. Use standard symbols for the tree. Analyze the tree to select the optimal decision for the manufacturer.
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mizunoshiromizunoshiro
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