An operations manager’s staff has compiled the information below for four manufacturing alternatives (E, F, G, and H) that vary by production technology and the capacity of the machinery.

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1. An operations manager’s staff has compiled the information below for four manufacturing
alternatives (E, F, G, and H) that vary by production technology and the capacity of the
machinery. All choices enable the same level of total production and have the same lifetime. The
four states of nature represent four levels of consumer acceptance of the firm’s products. Values
in the table are net present value of future profits in millions of dollars. Forecasts indicate that
there is a 0.1 probability of acceptance level 1, 0.2 chance of acceptance level 2, 0.4 chance of
acceptance level 3, and 0.3 change of acceptance level 4.
States of nature
1 2 3 4
Alternative E 50 50 70 60
Alternative F 30 50 80 130
Alternative G 70 80 70 60
Alternative H -140 -10 150 220
i. Draw decision making tree.
ii. Using the criterion of expected monetary value, which production alternative should be
chosen?

2. Explain why event probabilities range from zero to one.

3. A network consists of the following list. Times are given in weeks.
Activity Preceding Duration
A — 18
B A 4
C A 24
D A 10
E B 12
F B 16
G C, F 6
H D 4
I H 16
J G, I 12
K E, J 4
a) Draw the network diagram.
b) Which activities form the critical path?
c) What is the duration of the critical?

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