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 , and .
|Facility||Demand Options||Probability||Actions||Expected Payoffs|
|Large||Low Demand||0.4||Do Nothing||($10)|
|Low Demand||0.4||Reduce Prices||$50|
|High Demand||0.6||Do Nothing||$40|
Determination of chance probability and respective payoffs:
Determination of of each alternative
Build Small: $16+$33=$49
Build Large: $20+$42=$62
See attachment belowfor the Statistical Terms review sheet.
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