Determine the complete, optimal decision strategy

Assignment Help Managerial Economics
Reference no: EM1372991

Copy Makers Corporation has just received a credit request from a new consumer who wants to buy a copying machine. As input to its decision of whether to grant credit, CMI has made the following estimates and assumptions:

- If CMI denies the customer credit, there is a 20 percent chance that the customer will buy the copying machine with cash anyway.
- If CMI grants credit, there is a 70 percent chance the customer will be a good credit risk.
- If CMI grants credit and the customer is a good credit risk, CMI will collect 100 percent of the purchase price.
- If CMI grants credit and the customer is a bad credit risk, CMI has two options. Under the first option, CMI would continue to send the customer a bill and hope it is eventually paid. Under this option, CMI will collect 100 percent, 50 percent, or 0 percent of the amount owed, with probabilities 0.1, 0.2, and 0.7, respectively. Under the second option, CMI would vigorously pursue the collection of the amount owed. To do so would cost CMI 25 percent of the amount owed, regardless of the amount eventually collected. Under this second option, CMI will again collect 100 percent, 50 percent, or 0 percent of the amount owed, with probabilities 0.3, 0.5, and 0.2 respectively.
- The copy machine sells for $8000 and costs CMI $5000. Non vigorous enforcement has not cost, while vigorous enforcement costs $2000.

a. What is the complete, optimal decision strategy for CMI?
b. What is the optimal expected value?


Reference no: EM1372991

Advantages and disadvantages of online, paper catalogs

Now that many businesses have upgraded to an online platform, are paper catalogs a thing of the last? Let's look at this from both sides of the table, both the customers and t

Perform statistical analysis of short-run production

Perform a statistical analysis of its short-run production costs to estimate its total variable cost function, average variable cost function, and marginal cost function

How does managerial economics fit into your topic

What is the importance of each of the six topics within Proctor & Gamble? What is the usefulness of understanding this topic in today's corporate structure? How does manageria

Identifying a social cause for final project

Identifying a Social Cause for Final Project: Working toward Becoming a Socially Responsible Company. As you consider your options, evaluate whether the alternatives you come

Do the monopoly profits make up for the loss in producer

What is the dead-weight loss that results from the monopolization of a market? Who loses this? In other words, does the dead-weight loss come from producer or consumer surplus

Square distribution

Show that if Y1 has a chi-square distribution with v1 degrees of freedom and Y2 has a chi-square distribution with v2 degrees of freedom, then U = Y1 +Y2 has a chi-square dist

Dsm options and techniques

Analyse the months and times of peak and off-peak energy use. Using some of the DSM options and techniques discussed in this week, provide a proposal for the management of p

Relationship between effort and performance improvement

The ability to identify a relationship between effort and performance improvement - determine a performance threshold at which a firm should consider redistributing resources


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd