Dermaplus Analysis Essay

1536 Words Mar 14th, 2012 7 Pages
Assignment Scope

Based on a rigorous analysis of the data provided, this report provides details with respect to the profit-maximizing average daily production capacity for DermaPlusTM for each possible reference-based price of $50, $100, and $150 per unit identified by the consultant. The estimated expected daily profit at each price will also be provided. All unit and price values have been rounded to the nearest whole number or dollar.

Information in terms of the recommended average daily production capacity in units for the next 12 months will be provided in order to set the size of the plant’s unionized workforce. The assumption is the quantity of units identified used to set the size of the workforce will maximize daily
…show more content…
See Appendix II for detailed calculations.

Conclusion

Table 1.1 shows the payoff matrix for BioMed based on the various decisions and states of nature.

Table 1.1

| | States of Nature | Average Daily Production Options (Units) | AVC | Price at $50 | Price at $100 | Price at $150 | 342 | $ 24.41 | $ (249) | $ 16,851 | $ 33,951 | 407 | $ 32.25 | $ (1,775) | $ 18,575 | $ 38,925 | 456 | $ 42.13 | $ (5,410) | $ 17,390 | $ 40,190 |

Implementing the recommended average daily production capacity for the next twelve months based on price uncertainty at 442 units will result in potential regret once the actual price is set by the government.

Table 1.2 details the potential regret at this level of production.

Table 1.2

| Potential Regret | Average Daily Production Options | Price at $50 | Price at $100 | Price at $150 | 342 | $ - | $ 1,724 | $ 6,239 | 407 | $ 1,526 | $ - | $ 1,265 | 442 | $ 3,870 | $ 594 | $ 109 | 456 | $ 5,161 | $ 1,185 | $ - |

BioMed management may consider alternative rules for making decisions to set production capacity.

If management is optimistic with respect to the possibility of government setting the price of DermaPlusTM at $150

Related Documents