1. What actions should ABC take to maximize the net profit? ABC's manufacturing decision: Adopt current...

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1. What actions should ABC take to maximize the net profit? ABC's manufacturing decision: Adopt current system, or Develop new system. Net Profit $0 No Bid Current $1,400,000 Bids $950 (3/5) $900,000 ABC's bid Decision: (1/3) New (2/5) $4,400,000 No bid, or (2/3) Bids $950, -$100,000 or $850 Bids $850 Current $400,000 (3/5). -$100,000 (2/3) New (2/5) (1/3) $3,400,000 -$100,000 2. KZ Systems has agreed to supply 500,000 PC FAX systems to YD Stores in 90 days at a fixed price. A key component in the FAX systems is a programmable array logic integrated circuit chip ("PAL chip"), one of which is required in each FAX system. KZ has bought these chips in the past from an American chip manufacturer AM Chips. However, KZ has been approached by a Korean manufacturer, KEC Electronics, which is offering a lower price on the chips. This offer is open for only 10 days, and KZ must decide whether to buy some or all of the PAL chips from KEC. Any chips that KZ does not buy from KEC will be bought from AM. AM Chips will sell chips to KZ for $3.00 per chip in any quantity, KEC will accept orders only in multiples of 250,000 chips, and is offering to sell the chips for $2.00 per chip for 250,000 chips, and for $1.50 per chip in quantities of 500,000 or more chips. However, the situation is complicated by a dumping charge that has been led by AM Chips against KEC. If this charge is upheld by the U. S. government, then the KEC chips will be subject to an anti-dumping tax. This case will not be resolved until after the point in time when KZ must make the purchase decision. If KZ buys the KEC chips, these will not be shipped until after the anti-dumping tax would go into effect and the chips would be subject to the tax. Under the terms offered by KEC, KZ would have to pay any anti-dumping tax that is imposed. KZ believes there is a 60% chance the anti-dumping tax will be imposed. If it is imposed, then it is equally likely that the tax will be 50%, 100%, or 200% of the sale price for each PAL chip. + (1) Draw a complete decision tree for this decision problem.+ (ii) Using expected value as the decision criterion, determine KZ's preferred ordering alternative for the PAL chips. 1. What actions should ABC take to maximize the net profit? ABC's manufacturing decision: Adopt current system, or Develop new system. Net Profit $0 No Bid Current $1,400,000 Bids $950 (3/5) $900,000 ABC's bid Decision: (1/3) New (2/5) $4,400,000 No bid, or (2/3) Bids $950, -$100,000 or $850 Bids $850 Current $400,000 (3/5). -$100,000 (2/3) New (2/5) (1/3) $3,400,000 -$100,000 2. KZ Systems has agreed to supply 500,000 PC FAX systems to YD Stores in 90 days at a fixed price. A key component in the FAX systems is a programmable array logic integrated circuit chip ("PAL chip"), one of which is required in each FAX system. KZ has bought these chips in the past from an American chip manufacturer AM Chips. However, KZ has been approached by a Korean manufacturer, KEC Electronics, which is offering a lower price on the chips. This offer is open for only 10 days, and KZ must decide whether to buy some or all of the PAL chips from KEC. Any chips that KZ does not buy from KEC will be bought from AM. AM Chips will sell chips to KZ for $3.00 per chip in any quantity, KEC will accept orders only in multiples of 250,000 chips, and is offering to sell the chips for $2.00 per chip for 250,000 chips, and for $1.50 per chip in quantities of 500,000 or more chips. However, the situation is complicated by a dumping charge that has been led by AM Chips against KEC. If this charge is upheld by the U. S. government, then the KEC chips will be subject to an anti-dumping tax. This case will not be resolved until after the point in time when KZ must make the purchase decision. If KZ buys the KEC chips, these will not be shipped until after the anti-dumping tax would go into effect and the chips would be subject to the tax. Under the terms offered by KEC, KZ would have to pay any anti-dumping tax that is imposed. KZ believes there is a 60% chance the anti-dumping tax will be imposed. If it is imposed, then it is equally likely that the tax will be 50%, 100%, or 200% of the sale price for each PAL chip. + (1) Draw a complete decision tree for this decision problem.+ (ii) Using expected value as the decision criterion, determine KZ's preferred ordering alternative for the PAL chips.