# Question: Steve is the director of operations for Diamond Chemical Company

Steve is the director of operations for Diamond Chemical Company. The company is considering whether to launch a new product line, which will require building a new facility. The research required to produce the new product has not been proven to work in a full scale operation. If Steve decides to build the new facility and the process is successful, Diamond Chemical will earn a profit of $ 750,000. If the process is unsuccessful, his company will realize a loss of $ 900,000. Steve estimates that the probability of the full scale process succeeding is 65%. Steve has the option of constructing a pilot plant for $ 60,000 to test the new process before deciding to build the full scale facility. He estimates there is a 58% probability that the pilot plant will prove successful. If the pilot plant succeeds, he thinks the chance of the full scale facility succeeding is 90%. If the pilot plant fails, he thinks the chance of the full scale facility succeeding is only 30%.

a. Structure this problem with a decision tree and advise Steve what to do.

b. What is the most Steve should pay to construct the pilot plant?

a. Structure this problem with a decision tree and advise Steve what to do.

b. What is the most Steve should pay to construct the pilot plant?

## Answer to relevant Questions

Steve is the director of operations for Diamond Chemical Company. The company is considering whether to launch a new product line, which will require building a new facility. The research required to produce the new product ...You are the vice president of a consumer electronics company that needs to determine whether or not to introduce a new product to the market. Either your company can manufacture it or you can subcontract the production to ...Using the data from Problem 17.2, calculate the payoffs for the decision table assuming that any unsold units can be sold the following day at a price of $ 2 per unit. Problem 17.2 Texas Oil owns a parcel of land that has the potential for containing much oil, some oil, or no oil underground. The company needs to decide whether or not to drill on this parcel. The payoffs are as follows in millions of ...Consider the following sample data: 6 19 14 5 16 14 10 Using α = 0.05, perform a hypothesis test to determine if the population median from which this sample has been drawn exceeds 10.Post your question