A machine shop owner is attempting to decide whether to purchase a new drill pre

Question

A machine shop owner is attempting to decide whether to purchase a new drill press, a lathe, or a grinder. The return from each will be determined by whether the company succeeds in getting (a = .60) (a = .3) (a = .4) PROBLEMS 577 a government military contract. The profit or loss from each purchase and the probabilities associated with each contract outcome are shown in the following payoff table: Contract No Contract Purchase .40 .60 Drill press $40,000 $-8,000 Lathe 20,000 4,000 Grinder 12,000 10,000 Compute the expected value for each purchase and select the best one

Explanation / Answer

Machine Shop

Decision is to be made :

To purchase a new drill press , Lathe , Grinder

or

Not to purchase

The value given in pay off table & the pay off table & expected value are

From above table its clear that

the expected value is more contract.

So owner can go with the government military contract. He/She can purchase the machinery as per contract.

Contract No contract 0.4 Expected Value 0.6 Expected Value Drill Press 40000 16000 8000 4800 Lathe 20000 8000 4000 2400 Grinder 12000 4800 10000 6000 28800 13200

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.