# Determine the maximum amount the GFMC should pay for the analyst’s services.

C. Application: The General Ford Motors Corporation (GFMC) is planning the introduction of a brand new SUV—the Vector. There are two options for production. One is to build the Vector at the company’s existing plant in Indiana, sharing production time with its line of minivans that are currently being produced there. If sales of the Vector are just moderate, this will work out well as there is sufficient capacity to produce both types of vehicles at the same plant. However, if sales of the Vector are strong, this option would require the operation of a third shift, which would lead to significantly higher costs. A second option is to open a new plant in Georgia. This plant would have sufficient capacity to meet even the largest projections for sales of the Vector. However, if sales are only moderate, the plant would be underutilized and therefore less efficient. This is a new design, so sales are hard to predict. However, GFMC predicts that there would be about a 60% chance of strong sales and a 40% chance of moderate sales. The expected
Annual profit in the payoff tale below:
Shared Plant in Indiana: State of nature (Moderate Sales (\$500 million), Strong Sales (\$400 million).
Dedicated Plant In Georgia :State of nature (Moderate Sales (\$ 0 ), Strong Sales (\$600 million).
Due to the uncertainty in expected sales for the Vector, GFMC is considering conducting a marketing survey to determine customer attitudes toward the Vector and better predict the likelihood of strong sales. The marketing survey would give one of two results—a positive attitude or a negative attitude toward the design. For vehicles that eventually had strong sales, the marketing survey indicated positive attitudes toward the design equal 70% and negative attitudes equal 30%. For vehicles that eventually had moderate sales, the marketing survey indicated positive attitudes toward the design equal 20% and negative attitudes equal 80%
a. Compute the expected value for each decision and select the best one.
b. Develop the opportunity loss table and compute the expected opportunity loss for each product.
c. Determine how much the firm would be willing to pay a market research firm to gain better information about future market conditions.
d. Using decision tree analysis determine the optimal strategy for GFMC)
e. Determine the maximum amount the GFMC should pay for the analyst’s services.
f. Compute the efficiency of the sample information
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