2. Given the setting at Q1 above (i.e. the 0.6 probability of competition), what

Question

2. Given the setting at Q1 above (i.e. the 0.6 probability of competition), what is the expected value of Space Pirates (in thousands)?

a) 460

b) 640

c) 724

d) 1120

3. Use sensitivity analysis to determine what the probability of competition for Space Pirates would have to be for you to change your recommended decision alternative (p: probability of competition).

a) p>0

b) p < 0.7273

c) p>= 0.7273

d) p < 1

Space Pirates with Competition Profit Probability High $800 0.3 Demand Medium $400 0.4 Low $200 0.3 Demand Medium $800 0.3 Space Pirates without Competition Profit Probability High $1600 0.5 Low $400 0.2

Explanation / Answer

2.

Answer:

d) 1120

Based on the data above, the expected value of space pirates would be 1120. Hence the final answer is ‘d’.

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