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466 Suggested answers to selected questions
$30 780, as opposed to $30 880 if the specialist local company is
called in immediately. Sensitivity analysis is therefore advisable.)
(3) (b) Westward should not bring the launch forward (expected
profit = $3.005 million, as opposed to $2.68 million for bringing
the launch forward and $0 for not launching at all), and
if the rival launches first they should increase their level of
advertising.
(c) The policy is totally insensitive to changes in these probabilities,
i.e. not bringing the launch forward is the best option whatever
estimates are used for the probabilities of beating the rival.
(4) (b) The Authority should erect a cheap temporary barrier, but if the
barrier is damaged they should not repair it (the expected cost of
this policy is $1.275 million as opposed to $1.48 million for doing
nothing and $1.716 million for erecting an expensive barrier).
(5) (a) The 20-person team gives the lowest expected costs of $11 600.
(b) The manager should now use a 15-person team and hire the
equipment only if the overhaul is behind schedule on the Saturday
evening. (Note that the two expected costs are very
close, $11 400 for the 15-person team and $11 600 for the 20person
team, which suggests that sensitivity analysis should be
carried out.)
(6) They should initially choose to develop zylogen. If the development
had not been completed after 3 years they should modify the
zylogen approach. If, after a further 2 years, development is still not
complete they should switch to the alternative HMP acid approach.
The expected development time of this policy is 5.27 years, as
opposed to 6.2 years if HMP acid is developed at the outset.
(7) Casti should choose the TCX dipping procedure and, if it fails,
modify it (this gives expected net savings of $3.9 million as opposed
to $1.2 million for the KVG electro-sealing technology).
(8) (a) Roka Rola should include the device in their cans, but not change
the ingredients if Tepsi include the device in their cans (expected
market share = 31.9%, as opposed to 24% for not including the
device).
(b) The decision is totally insensitive to changes in this probability.
(c) (i) u(20%) = 0.6, u(30%) = 0.8; the utility function implies risk
aversion.
(ii) The optimum policy remains unchanged (maximum expected
utility = 0.801).
(9) (a) NMC should open the plant in Tundrastan and, if there is
competition, they should attempt to buy out the competitor.