East West Distributing is in the process of trying to determine where they shoul

Question

East West Distributing is in the process of trying to determine where they should schedule next year's production of a popular line of kitchen utensils that they distribute. Manufacturers form in four different countries have submitted bids to East West. However, a pending trade in bill in Congress will greatly affect the cost to East West due to proposed tariffs, favorable trading status, etc. After a careful analysis, East West has determined the following cost breakdown for the four manufacturers (in $1,000's) on whether or not the trade bill passes: Bill Passes country A 260, country B 320, country C 240, country D 275 Bill Fails country A 210, country B 160, country C 240, country D 210 a. If East West estimates that there is a 40% chance of the bill passing, which country should they choose for manufacturing? b. over what range of values for the "bill passing" will the solution in part (a) remain optimal?

Explanation / Answer

East West Distributing is in the process of trying to determine where they should schedule next year's production of a popular line of kitchen utensils that they distribute. Manufacturers in four different countries have submitted bids to East West. However, a pending trade bill in Congress will greatly affect the cost to East West due to proposed tariffs, favorable trading status, etc. After careful analysis, East West has determined the following cost breakdown for the four manufacturers (in $1,000's) based on whether or not the trade bill passes: Country A Country B Country C Country D a. b. Bill Passes 260 320 240 275 Bill Fails 210 160 240 210 If East West estimates that there is a 40% chance of the bill passing, which country should they choose for manufacturing? Over what range of values for the "bill passing" will the solution in part (a) remain optimal? a. b. Using EV approach: EV(A) = 230, EV(B) = 224, EV(C) = 240; Choose Country B (lowest EV) As long as the probability of the bill passing is less than .455, East West should choose Country

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