probabilities

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Freddy owns a taxicab company and is trying to find the most economical method of handling incoming calls. He currently has a couple of employees working the phones, but wonders if there is a better arrangement. His options for the call center are: continue with his own staff, outsource to a large company that specializes in call centers, or use a combination of his own staff and the large company. The annual cost of each option (in thousands of dollars) depends on demand as follows.

Demand

Staffing options high medium low
own staff 30 30 25
outsource 50 25 15
combination 40 30 20


If the demand probabilities are .3, .4, and .3, which decision alternative will minimize the expected cost of the call center?
A) Own staff
B) Outsource
C) Combination

What is the expected annual cost associated with that recommendation?
A) $29,500
B) $35,000
C) $30,000
D) $28,500
E) $30,500

For your recommendation, what is the probability of cost exceeding $35,000?
A) .7
B) .3
C) .6
D) 0

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