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Greentrop Pharmaceutical produces the sleep aid Dozealot. It is considering two reformulations to minimize side effects and improve efficacy. Management wants to analyze the potential profit under low, medium, and high demand for each alternative. The payoff table shows projected profits in millions of dollars ranging from $300 to $875 depending on the alternative and demand scenario.

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Al Borja
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216 views2 pages

Answer

Greentrop Pharmaceutical produces the sleep aid Dozealot. It is considering two reformulations to minimize side effects and improve efficacy. Management wants to analyze the potential profit under low, medium, and high demand for each alternative. The payoff table shows projected profits in millions of dollars ranging from $300 to $875 depending on the alternative and demand scenario.

Uploaded by

Al Borja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Greentrop Pharmaceutical Products are the world leader in the area of sleep aids. Its major
product is “Dozealot”. The Research-and-Development Division has defined two alternatives to
improve the quality of the product. These alternatives are simple reformulations of the product to
minimize the side effects and to improve the product efficacy. To conduct an analysis,
management has decided to consider the possible demands for the drug under each alternative.
The following payoff table shows the projected profit in millions of dollars.
?
Demand
Decision Alternatives Low Medium High
d  $500 $350 $525
1

d  $875 $300 $765
2

a. Construct a decision tree for this problem.


b. If the decision maker knows nothing about the probabilities of three states of nature, what is
the recommended decision using the optimistic, conservative, and minimax regret approaches?
ANSWER:
a.

b.
Decision Alternatives Maximum Profit Minimum Profit
d  $525 $350
1

d  $875 $300
2

Optimistic approach: select D  which has the largest maximum profit.


2

b.
Decision Alternatives Maximum Profit Minimum Profit
d  $525 $350
1

d  $875 $300
2

Optimistic approach: select D  which has the largest maximum profit.


2

Conservative approach: select D  which has the largest minimum profit.


1

Regret or opportunity loss table:


Decision Alternatives Demand
Low Medium High Maximum Regret
d  $375 0 $240 $375
1

d  0 $50 0 $50
2

Minimax Regret: The decision alternative is D  with the minimum of the maximum regret values
2

$50.
POINTS:  1
DIFFICULTY: Moderate
REFERENCES: DECISION ANALYSIS WITHOUT PROBABILITIES, Pages 757-758
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom’s: Application

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