Sirius Cybernetics Corporation is considering the launch of Plastic Pal, a new model of human-friendly robots....

 

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Sirius Cybernetics Corporation is considering the launch of "Plastic Pal", a new model of human-friendly robots. However, before a model can be certified as human-friendly, it has to pass the Voight-Kampff test. This requires building a prototype, which in turn requires first developing the blueprints for the model. The cost of developing blueprints for the new model is $20 million. The cost of building a high quality prototype is $35 million. The probability of passing the Voight-Kampff test is 60%, if the prototype is prepared with high quality. A cheaper way to produce a prototype at a cost of $15 million results in only 20% chance of passing the test. The test can be retaken, but the result for the same prototype quality is always the same. The high-quality prototype is always more successful: if it does not pass the test, then neither would the low-quality prototype. The demand for a certified human-friendly robot is Qª(p) = 1000(100-2p), where p is in Sthousands. Any number of mass-produced non-human-friendly robots can be sold, but only in the competitive world market for military robots, at a price of $20,000. Mass production would require building a dedicated production line at a cost of $200 million. A robot production line has a capacity to produce 400,000 robots, at a marginal cost of $25,000. (a) (12p) Illustrate the situation facing Sirius Cybernetics with a decision tree. What is the optimal plan of action for Sirius and its expected value? (b) (6p) Marvin Consulting Inc has the ability to predict the outcome of the Voight-Kampff test just based on the blueprints. How much, at most, should Sirius be willing to pay for its services? Consider only a deal, where it gives its prediction for both prototypes. (c) (6p) How sensitive is the optimal plan of action in 2a to the number of potential buyers N, which is associated with the demand Q(p|N) = N(100-2p)? I.e., at what level of N does the decision change, and how? Sirius Cybernetics Corporation is considering the launch of "Plastic Pal", a new model of human-friendly robots. However, before a model can be certified as human-friendly, it has to pass the Voight-Kampff test. This requires building a prototype, which in turn requires first developing the blueprints for the model. The cost of developing blueprints for the new model is $20 million. The cost of building a high quality prototype is $35 million. The probability of passing the Voight-Kampff test is 60%, if the prototype is prepared with high quality. A cheaper way to produce a prototype at a cost of $15 million results in only 20% chance of passing the test. The test can be retaken, but the result for the same prototype quality is always the same. The high-quality prototype is always more successful: if it does not pass the test, then neither would the low-quality prototype. The demand for a certified human-friendly robot is Qª(p) = 1000(100-2p), where p is in Sthousands. Any number of mass-produced non-human-friendly robots can be sold, but only in the competitive world market for military robots, at a price of $20,000. Mass production would require building a dedicated production line at a cost of $200 million. A robot production line has a capacity to produce 400,000 robots, at a marginal cost of $25,000. (a) (12p) Illustrate the situation facing Sirius Cybernetics with a decision tree. What is the optimal plan of action for Sirius and its expected value? (b) (6p) Marvin Consulting Inc has the ability to predict the outcome of the Voight-Kampff test just based on the blueprints. How much, at most, should Sirius be willing to pay for its services? Consider only a deal, where it gives its prediction for both prototypes. (c) (6p) How sensitive is the optimal plan of action in 2a to the number of potential buyers N, which is associated with the demand Q(p|N) = N(100-2p)? I.e., at what level of N does the decision change, and how?

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ANSWER A A decision tree is a flowchartlike diagram that shows the various outcomes from a series of decisions It can be used as a decisionmaking tool for research analysis or for planning strategy A ... View the full answer