MA93 Problem: Expected Values (Payoff Tables) - Propeller Inc.

MA93 Problem: Expected Values (Payoff Tables) - Propeller Inc.

A company, Propeller Inc., is considering three alternative machines to produce a new product. The coststructures (unit variable costs plus avoidable fixed costs) for the three machines are shown below. Theselling price is unaffected by the machine used.Single-purpose machine $0.60 + $20,000Semiautomatic machine $0.40 + $50,000Automatic machine $0.20 + $120,000The demand for units of the new product is described by the following probability distribution:

 Demand Probability

200,000 0.4

300,000 0.3

400,000 0.2

500,000 0.1

 Required -

Calculate expected demand. Calculate the expected costs of using the semiautomatic machine. Whichmachine should be selected?