Assignment 2: Probability Analysis

A General Manger of Harley-Davidson has to decide on the size of a new facility. The GM has narrowed the choices to two: large facility or small facility. The company has collected information on the payoffs. It now has to decide which option is the best using probability analysis, the decision tree model, and expected monetary value.

Options:

FacilityDemand OptionsProbabilityActionsExpected Payoffs LargeLow Demand0.4Do Nothing($10) Low Demand0.4Reduce Prices$50 High Demand0.6 $70 SmallLow Demand0.4 $40 High Demand0.6Do Nothing$40 High Demand0.6Overtime$50 High Demand0.6Expand$55

Determination of chance probability and respective payoffs:

Build Small: Low Demand0.4($40)=$16High Demand0.6($55)=$33 Build Large: Low Demand0.4($50)=$20High Demand0.6($70)=$42Determination of Expected Value of each alternative Build Small: $16+$33=$49 Build Large: $20+$42=$62

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Assignment 2 Grading Criteria Maximum PointsThe diagram is accurate and labeled correctly. The diagram clearly illustrates the sequence of events and their probability of occurrences.32A step-by-step breakdown of the calculations for the chance of probability and respective payoff is clearly communicated. The results of the calculations are accurate.28A step-by-step breakdown of the calculations for expected value is clearly communicated. The results of the calculations are accurate.20Clear and concise statement explaining the decision and a description of elements that lead to the decision.20Total:100