Can Someone Answer The Following Question: The J Whack Co Is

Can Someone Answer The Following Questionthe J Whack Co Is Consider

Can someone answer the following question? The J. Whack Co. is considering a new product. The senior management has no idea whether or not the Nita Jackson Co. will come out with a competitive product. If J. Whack adds an assembly line for the product and Nita Jackson does not follow with a competitive product, their expected profit is $40,000; if they add an assembly line and Nita Jackson does follow, they still expect a $10,000 profit. If J. Whack adds a new plant addition and Nita Jackson does not produce a competitive product, they expect a profit of $600,000; if Nita Jackson does compete for this market, J. Whack expects a loss of $100,000. Part 1: Construct a Payoff table for this situation; Part 2: Calculate Hurwicz's criterion of realism using α's of a. 0.7, b. 0.3, and c. 0.1.

Paper For Above instruction

The decision-making process for J. Whack Co. concerning the launch of a new product involves significant uncertainty regarding the competitive actions of Nita Jackson Co. This scenario can be effectively analyzed through decision theory tools, notably the payoff table and Hurwicz's criterion of optimism-pessimism. By systematically examining potential outcomes, management can make informed choices that balance risk and expected benefits.

Part 1: Constructing the Payoff Table

The payoff table summarizes the potential profits corresponding to the strategic choices of J. Whack Co. (adding an assembly line or a plant addition) against the possible responses of Nita Jackson Co. (combat with a competitive product or not). The table below delineates these scenarios:

| | Nita Jackson: No Competition | Nita Jackson: Competition |

|----------------------------|------------------------------|--------------------------|

| J. Whack: Add Assembly Line | $40,000 | $10,000 |

| J. Whack: Add Plant Addition | $600,000 | -$100,000 |

Explanation of Payoff Values:

- When J. Whack adds an assembly line:

- If Nita Jackson does not follow, profit is $40,000.

- If Nita Jackson follows, profit drops to $10,000.

- When J. Whack adds a plant:

- If Nita Jackson does not follow, profit increases markedly to $600,000.

- If Nita Jackson follows, J. Whack faces a loss of $100,000.

This table provides a clear framework for evaluating strategic options under uncertainty.

Part 2: Applying Hurwicz's Criterion of Realism

Hurwicz's criterion helps decision-makers to incorporate their level of optimism or pessimism via the coefficient of optimism, α (alpha). The criterion calculates a weighted average of the best and worst payoffs for each decision alternative, expressed as:

\[

H = \alpha \times \text{maximum payoff} + (1 - \alpha) \times \text{minimum payoff}

\]

Calculations for each decision alternative based on different α values are as follows:

a. When α = 0.7 (High optimism):

- Add Assembly Line:

- Max payoff = $40,000

- Min payoff = $10,000

- Hurwicz value = 0.7×$40,000 + 0.3×$10,000 = $28,000 + $3,000 = $31,000

- Add Plant Addition:

- Max payoff = $600,000

- Min payoff = -$100,000

- Hurwicz value = 0.7×$600,000 + 0.3×(-$100,000) = $420,000 - $30,000 = $390,000

b. When α = 0.3 (Moderate optimism):

- Add Assembly Line:

- Hurwicz value = 0.3×$40,000 + 0.7×$10,000 = $12,000 + $7,000 = $19,000

- Add Plant Addition:

- Hurwicz value = 0.3×$600,000 + 0.7×(-$100,000) = $180,000 - $70,000 = $110,000

c. When α = 0.1 (Low optimism):

- Add Assembly Line:

- Hurwicz value = 0.1×$40,000 + 0.9×$10,000 = $4,000 + $9,000 = $13,000

- Add Plant Addition:

- Hurwicz value = 0.1×$600,000 + 0.9×(-$100,000) = $60,000 - $90,000 = -$30,000

Decision Implications:

- For highly optimistic views (α=0.7), the large expected payoff from adding a plant makes it the preferable choice.

- As optimism decreases (α=0.3 and 0.1), the safer choice shifts toward adding the assembly line due to the significant risk associated with the plant addition, especially under less optimistic scenarios.

Conclusion:

The analysis demonstrates that the decision-making stance—optimistic or conservative—significantly influences the strategic choice. A risk-averse manager, with a low α, might lean toward adding an assembly line to mitigate potential losses, whereas a more optimistic perspective favors making a substantial investment like the plant addition. Decision-makers should consider their risk tolerance level and the likelihood of Nita Jackson's competitive actions when finalizing their strategy.

References

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