Question 1
We have options for changing capacity:
- Do nothing, add small facility, or add large facility
- More capacity = higher fixed costs
- Lower capacity = higher variable costs
- Compare production potential against possible demand
Capacity | Low Demand | Medium Demand | High Demand |
Don’t add | $3m | $4m | $5m |
Add small | $1m | $5m | $8m |
Add large | ($3m) | $3m | $13m |
Question 2
A manufacturer is considering switching vendors to get higherquality inputs. After substantial research, we have gathered thefollowing information:
Cost of breaking contract with existing vendor is $1m
Distribution of potential payoffs after switching:
- 70%: $2.5m
- 30%: $0.5m
Alternately, we can ask the current vendor to improve quality,with distribution of potential payoffs:
- 50%: $0
- 50%: $1.6m
Based on expected payoffs, should the manufacturer switch?
Question 2
Suppose you have aggregated customer demand as:
Zone | Demand Location | Weight |
A | (4, 1) | 20 |
B | (-1, -5) | 15 |
C | (-3, 1) | 25 |
D | (-1, 5) | 30 |
You are considering two potential new facilities:
One at (1, 0)
One at (0, 1)
Which facility has the shortest sum of distances?
Find the Euclidean distance for each zone
Multiply that distance by its weight
Add all four weighted distances
Question 3
Using the previous aggregated customer demand:
Zone | Demand Location | Weight |
A | (4, 1) | 20 |
B | (-1, -5) | 15 |
C | (-3, 1) | 25 |
D | (-1, 5) | 30 |
Again, we compare two potential new facilities:
One at (1, 0)
One at (0, 1)
Which facility has the shortest sum of distances?
Find the metropolitan distance for each zone
Multiply that distance by its weight
Add all four weighted distances
