You saw in Example 9.4 how Acme prefers to abandon the product when the risk tolerance in
Question:
You saw in Example 9.4 how Acme prefers to abandon the product when the risk tolerance in cell B12 is $5000 (really $5 million). This is despite the fact that the EMV from continuing with the product is well above 0. Using this same risk tolerance, experiment with the sales volume from a great market in cell C8 to see approximately how large it has to be for Acme to prefer the “continue with product” decision. (One way to do this is with a data table, using the TRUE/ FALSE value in cell B14 as the single output.) With this sales volume, what is the certainty equivalent of the “continue with product” decision? How does it compare to the decision’s EMV? Explain the difference between the two.
Step by Step Answer:
Practical Management Science
ISBN: 978-1305250901
5th edition
Authors: Wayne L. Winston, Christian Albright