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Decision theory

Project Description:

XYZ Ltd, manufactures fidget spinners for children. Due to a new demand realized in the market, the firm has to decide whether to expand the present plant or to lease a new one. Expanding the present plant would cost USD. 10 million while leasing a new plant would cost USD. 25 million. Leasing a new plant would also reduce the current unit cost from USD. 7.50 to USD 5.00. A finished fidget spinner is sold at USD12.50 each. However, the demand in uncertain and has the following probability distribution:

   No. of fidget spinners ('000' units)      Probability

   20                                                       0.05

   30                                                       0.15

   40                                                       0.30

   50                                                       0.30

   60                                                       0.20

 

Required: Construct a conditional payoff table for each of the decision alternatives  (10 marks)

 

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