MGT 3410 Homework 1 Spring 2018
Models of Cost, Revenue and Profit & Probability
Do the following problems:
1. Eastman Publishing Company is considering publishing a paperback textbook on
spreadsheet applications for business. The fixed cost of manuscript preparation,
textbook design, and production setup is estimated to be $80,000. Variable
production and material costs are estimated to be $3 per book. Demand over the
life of the book is estimated to be 4000 copies. The publisher plans to sell the text
to college and university bookstores for $20 each.
a. What is the breakeven point?
b. What profit or loss can be anticipated with a demand of 4000 copies?
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c. With a demand of 4000 copies, what is the minimum price per copy that the
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publisher must charge to break even?
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d. If the publisher believes that the price per copy could be increased to $25.95
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and not affect the anticipated demand of 4000 copies, what action would you
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recommend? What profit or loss can be anticipated?
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2. A company studied the number of lost-time accidents occurring at its Brownsville,
Texas, plant. Historical records show that 6% of the employees had lost-time
accidents last year. Management believes that a special safety program will
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reduce the accidents to 5% during the current year. In addition, it estimates that
15% of those employees having had lost-time accidents last year will have a lost-
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time accident during the current year.
a. What percentage of the employees will have lost-time accidents in both years?
b. What percentage of the employees will have at least one lost-time accident
over the two-year period?
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3. A consulting firm submitted a bid for a large research project. The firm’s
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management initially felt there was a 50/50 chance of getting the bid. However,
the agency to which the bid was submitted subsequently requested additional
information on the bid. Experience indicates that on 75% of the successful bids
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and 40% of the unsuccessful bids the agency requested additional information.
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What is the probability that the bid will be successful given that a request for
additional information has been received?
4. The Bidwell Value Company requires all prospective employees to be
interviewed by a three man personnel committee. Each member of the committee
votes individually for or against a recommendation of employment. Upon
examining the company’s records over the past year, the personnel director has
noted the following probabilities for eight possible outcomes:
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Vote of Member
Outcome 1 2 3 Probability
E1 for for for .20
E2 for for against .14
E3 for against for .12
E4 for against against .07
E5 against for for .08
E6 against for against .11
E7 against against for .06
E8 against against against .22
a. What is the probability member 1 and member 2 vote for employment?
(Hint: Find all the outcomes that satisfy both member 1 and member 2 vote
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for employment, and then add up all the corresponding probabilities.)
b. What is the probability member 1 or member 2 vote for employment?
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(Hint: Find all the outcomes that satisfy either member 1 or member 2 votes
for employment, and then add up all the corresponding probabilities.)
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c. If member 1 votes for employment, what is the probability that member 2 will
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also vote for it?
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Hint: This question is to compute a conditional probability, i.e., P(member 2
votes for | member 1 votes for).
d. If a new employee is hired only if a majority of the committee members vote
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for employment, what is the probability that a prospective employee is hired?
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Does a job applicant stand a better or worse chance of being employed going
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before the committee than one of the individuals? Why?
(Hint: Find all the outcomes that satisfy the majority vote for employment,
and then add up all the corresponding probabilities. Compare this value to the
probability that each member votes for employment, respectively.)
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Due date: Jan 22, 11:59pm
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