Montreal Hardware Co. is making a make-or-buy decision. The market feedback shows that the optimal price for this item is $10 each. If the item is outsourced to Laval Hardware Co, there is virtually no cost other than the $6 per unit that they would pay Laval Hardware Co. Internally, they have two choices. Process A requires an investment of $120,000 for design and equipment, but it results in a $4 per unit cost. Process B requires only a $100,000 investment, but its per unit cost is $5. Regardless of whether the item is subcontracted or produced internally, there is a 50% chance that they will sell 50,000 units, and a 50% chance that they will sell 100,000 units. Draw the decision tree appropriate to the alternatives and outcomes stated. Using the decision tree and EMV, what is their best choice?

Montreal Hardware Co. is making a make-or-buy decision. The market feedback shows that the optimal price for this item is $10 each. If the item is outsourced to Laval Hardware Co, there is virtually no cost other than the $6 per unit that they would pay Laval Hardware Co. Internally, they have two choices. Process A requires an investment of $120,000 for design and equipment, but it results in a $4 per unit cost. Process B requires only a $100,000 investment, but its per unit cost is $5. Regardless of whether the item is subcontracted or produced internally, there is a 50% chance that they will sell 50,000 units, and a 50% chance that they will sell 100,000 units. Draw the decision tree appropriate to the alternatives and outcomes stated. Using the decision tree and EMV, what is their best choice?

Name: . Montreal Hardware Co. is making a make-or-buy decision. The market f
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Description: . Montreal Hardware Co. is making a make-or-buy decision. The market feedback shows that the optimal price for this item is $10 each. If the item is outsourced to Laval Hardware Co, there is virtually no cost other than the $6 per unit that they woul

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter19: Pricing Concepts

Section: Chapter Questions

Problem 6DRQ

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