Homework SourseKenneth Brown is the principal owner of Brown Oil Inc After
Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:
Favorable Market ($)
with probability 70%
Unfavorable Market ($)
with probability 30%
For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker.
Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry.
Question 1 of 9
Question 2 of 9
Question 3 of 9
Question 4 of 9
Question 5 of 9
Megley Cheese Company is a small manufacturer of several different cheese products. One of the products is a cheese spread that is sold to retail outlets. Jason Megley must decide how many cases of cheese spread to manufacture each month. The probability that the demand will be six cases is 0.1, for 7 cases is 0.3, for 8 cases is 0.5, and for 9 cases is 0.1. The cost of every case is $45, and the price that Jason gets for each case is $95. Unfortunately, any cases not sold by the end of the month are of no value, due to spoilage.
Hint: You need to fill in the following table and be careful with the waste whenever production exceeds consumption or the forgone revenue if supply/production falls short of demand.
Question 6 of 9
Question 7 of 9
Question 8 of 9
Question 9 of 9
| Equipment | Favorable Market ($) with probability 70% | Unfavorable Market ($) with probability 30% |
| Sub 100 | 300,000 | 200,000 |
| Oiler J | 250,000 | 100,000 |
| Texan | 75,000 | 18,000 |
Solution
Equipment
Favorable Market ($)
with probability 70%
Unfavorable Market ($)
with probability 30%
Expected Monetary Value
Sub 100
300,000
200,000
300,000 x 0.7 – 200,000 x 0.3 = 150,000
Oiler J
250,000
100,000
200,000 x 0.7 – 100,000 x 0.3 = 145,000
Texan
75,000
18,000
75,000 x 0.7 – 18,000 x 0.3 = 47,100
| Equipment | Favorable Market ($) with probability 70% | Unfavorable Market ($) with probability 30% | Expected Monetary Value |
| Sub 100 | 300,000 | 200,000 | 300,000 x 0.7 – 200,000 x 0.3 = 150,000 |
| Oiler J | 250,000 | 100,000 | 200,000 x 0.7 – 100,000 x 0.3 = 145,000 |
| Texan | 75,000 | 18,000 | 75,000 x 0.7 – 18,000 x 0.3 = 47,100 |
