4. (14 points) The Wilhelms Cola Company plans to market a new pineapple-flavour
ID: 3043222 • Letter: 4
Question
4. (14 points) The Wilhelms Cola Company plans to market a new pineapple-flavoured cola this summer. The decision is whether to package the cola in returnable or in non-returnable bottles. Currently, the provincial legislature is considering eliminating non-returnable bottles. Tybo Wilhelms, president of Wilhelms Cola Company, has discussed the problem with his government representative and established the probability to be 0.70 that non-returnable bottles will be eliminated. The table below shows the estimated monthly profits (in thousands of dollars) if the cola is bottled in returnable versus nonreturnable bottles. Of course, if the law is passed and the decision is to bottle the cola in nonreturnable bottles, all profits would be from out-of-province sales.
Law is passed (S1)
Law is not passed (S2)
Returnable Bottle
$80
$40
Non-returnable Bottle
$25
$60
a)Develop an opportunity loss table, and determine the opportunity loss for each decision. (Round the final answers to nearest dollar) (8 marks)
b)Compute the expected profit for both bottling decisions. (Round the final answers to nearest 10th.) (6 marks
Law is passed (S1)
Law is not passed (S2)
Returnable Bottle
$80
$40
Non-returnable Bottle
$25
$60
Explanation / Answer
a)
Returnable Bottle
$0
$20
Non-returnable Bottle
$55
$0
Expected profit
Returnabel = 80* 0.7+40*0.3 =68
Non-returnable = 25*0.7+60*0.3= 35.5
Returnable Bottle
$0
$20
Non-returnable Bottle
$55
$0
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