TASK 1 - EXPECTED VALUE, TREES OF DECISION AND THEORY OF UTILITY

MARIA ALEJANDRA ORTEGA MARTIN

UNIVERSIDAD NACIONAL ABIERTA Y A DISTANCIA

ESCUELA DE CIENCIAS BÁSICAS, TECNOLOGÍA E INGENIERÍA
GUATEQUE
2020
Exercise 1.
Teratex, a textile company that has a productive experience in the foreign market of 25
years, must decide if it manufactures a new product in its main plant, or if on the contrary
the purchase from an external supplier. The profits depend on the demand of the product.
The table shows projected profits, in millions of dollars.

Table 1. Decision process for the commercialization of the product

States of nature

Decision alternative Demand low- Demand low Demand High -

utility average - utility utility

Manufacture 321 352 367

Subcontract 335 353 381
Buy 318 361 375
Probabilities Ʃ = 1 0,35 0,35 0,3

According to the corresponding information in Table 1 and the Predicted Value of Perfect
Information (EVPI) theory, the Expected Value of Sample Information (EVMI) and
Decision Trees, respond:

a. Use EVPI to determine if the company should try to get a better estimate of the
demand.

b. A test market study of potential product demand is expected to report a favorable

(F) or unfavorable (U) condition. The relevant conditional probabilities are:

P(F/low) = 0,35 P(D/low) = 0,65

P(F/low average) = 0,41 P(D/ low average) = 0,59
P(F/high) = 0,32 P(D/high) = 0,68

c. What is the expected value of market research information?

d. What is the efficiency of the information?
 Solución

a. Use EVPI to determine if the company should try to get a better estimate of the
demand.

Nodo 2 345  
Nodo 3 355 BAJA
321 112
(0,35)  
Nodo 4 350
     
Nodo 1 355
 
MEDIA
La decisión FABRICAR
recomendada por el método
NOD BAJA(0,3 352
del5)valor esperado 123
es fabricar 345 de 355
con un pago
O2    
millones de dolares.
 
  EVPI
  = EVwPI – EVwoPI
MEDIA
EVwPI = (0.35x335) +ALTA
(0,35x361)+(0,3x381)
367 = 357,9
110
    (0,3)  
  EVwoPI
  = 355
 
EVPI = 357,9
BAJA
– 355 = 2, 9 = 3
335 117
  (0,35)  
       
   
MEDIA
SUBCONTRAT
NOD NOD BAJA 353 124 355
AR
O1 O3 (0,35)    
   
     
MEDIA
ALTA 381 114
    (0,3)  
   
   
BAJA
318 111
  (0,35)  
       
     
MEDIA
COMPRAR NOD BAJA 361 126 350
  O4 (0,35)    
 
   
MEDIA
ALTA 375 113
  (0,3)  
 b. A test market study of potential product demand is expected to report a favorable
(F) or unfavorable (U) condition. The relevant conditional probabilities are:

P(F/low) = 0,35 P(D/low) = 0,65

P(F/low average) = 0,41 P(D/ low average) = 0,59
P(F/high) = 0,32 P(D/high) = 0,68

Teorema de Bayes

P(A₁) = 0,35 , P(A₂) = 0,35 P(A₃) = 0,3

FAVORABLE

Estados de la Probabilidades Probabilidades Probabilidades Probabilidades

naturaleza previas condicionales P(F) conjuntas posteriores

ALTA 0,35 0,35 0,1225 0,33839779

MEDIA 0,35 0,41 0,1435 0,39640884
BAJA 0,3 0,32 0,096 0,26519337
P(F) 0,362

FAVORABLE

Estados de la Probabilidades Probabilidades Probabilidades Probabilidades

naturaleza previas condicionales P(F) conjuntas posteriores

ALTA 0,35 0,65 0,2275 0,356583072

MEDIA 0,35 0,59 0,2065 0,323667712
BAJA 0,3 0,68 0,204 0,319749216
P(F) 0,638

BAJA 0,34 321

 FABRICAR NODO 4 MEDIA BAJA 0,40 352 349,03
  MEDIA ALTA 0,27 367
 
 
  BAJA 0,34 335
FAVORABLE SUBCONTRATA
(O,362) NODE 2 R NOD0 5 MEDIA BAJA 0,4 353 357,97
      MEDIAALTA 0,27 381
         
   
    BAJA 0,34 318
  COMPRAR NODO 6 MEDIA BAJA 0,4 361 353,77
    MEDIAALTA 0,27 375
 
 
NODE
1 BAJA 0,36 321
  FABRICAR NODO 7 MEDIA BAJA 0,32 352 345,64
    MEDIAALTA 0,32 367
   
   
    BAJA 0,36 335
DESFAVORABL SUBCONTRATA
  E (0,638) NODE 3 R NODO 8 MEDIA BAJA 0,32 353 355,48
    MEDIAALTA 0,32 381
       
 
  BAJA 0,36 318
COMPRAR NODO 9 MEDIA BAJA 0,32 361 350
  MEDIAALTA 0,32 375

VE (Nodo 4) = 349,03
VE (Nodo 5) = 357,97
VE (Nodo 6) = 353,77
VE (Nodo 7) = 345,64
VE (Nodo 8) = 355,48
VE (Nodo 9) = 350
Favorable (Nodo 2) = Max ( Nodo4, Nodo5, Nodo6) = 367,97
Desfavorable (Nodo 3) = Max ( Nodo7, Nodo8, Nodo9) = 355,48

c. What is the expected value of market research information?

VE (Nodo1) = (0,362*367,97) + (0,638*355,48) = 360,001
d. What is the efficiency of the information?
Valor de la información perfecta:
VEIM = VecIM – VesIM = 360,001 - 355 = 5,001
E = (VEIM/VEIP) x 100 = (5,001 / 3 ) x 100 = 166,7 %

Exercise 2.
ElectroCom, a company that manufactures electronic components for the introduction in its
product catalog, must decide whether to manufacture a new product in its main plant,
subcontract it with company supervision or if it buys it from an external supplier. The
profits depend on the demand of the product. The table shows projected profits, in millions
of dollars.

According to the corresponding information in Table 2 and the Predicted Value of Perfect
Information (EVPI) theory, the Expected Value of Sample Information (EVMI) and
Decision Trees, respond:

a. Use EVPI to determine if the company should try to get a better estimate of the
demand.

b. A test market study of potential product demand is expected to report a favorable

(F) or unfavorable (U) condition. The relevant conditional probabilities are:

P(F/low) = 0,15 P(D/low) = 0,85

P(F/low average) = 0,45 P(D/ low average) = 0,55
P(F/high medium) = 0,3 P(D/ high medium) = 0,7
P(F/high) = 0,5 P(D/high) = 0,5
c. What is the expected value of market research information?
d. What is the efficiency of the information?