A manufacturing company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars). Decision Alternative Low Demand $1 State of Nature -5 P(U\S₁) = 0.90 P(U|S₂) = 0.60 P(U\S3) = 0.40 Manufacture, d₁ Purchase, d₂ The state-of-nature probabilities are P(S₁) = 0.35, P(S₂) = 0.35, and P(S3) = 0.30. (a) Use a decision tree to recommend a decision. The best decision is to ---Select--the component part. 25 Medium Demand $2 55 High Demand $3 60 115 85 (b) Use EVPI to determine whether the company should attempt to obtain a better estimate of demand, assuming the estimate would come at no further cost. EVPI = The EVPI suggests that the company ---Select--- consider an attempt to obtain a better estimate of demand. (c) A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(FIS₁) = 0.10 P(FIS₂) = 0.40 P(F|S3) = 0.60 What is the probability that the market research report will be favorable? P(F) =
A manufacturing company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars). Decision Alternative Low Demand $1 State of Nature -5 P(U\S₁) = 0.90 P(U|S₂) = 0.60 P(U\S3) = 0.40 Manufacture, d₁ Purchase, d₂ The state-of-nature probabilities are P(S₁) = 0.35, P(S₂) = 0.35, and P(S3) = 0.30. (a) Use a decision tree to recommend a decision. The best decision is to ---Select--the component part. 25 Medium Demand $2 55 High Demand $3 60 115 85 (b) Use EVPI to determine whether the company should attempt to obtain a better estimate of demand, assuming the estimate would come at no further cost. EVPI = The EVPI suggests that the company ---Select--- consider an attempt to obtain a better estimate of demand. (c) A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(FIS₁) = 0.10 P(FIS₂) = 0.40 P(F|S3) = 0.60 What is the probability that the market research report will be favorable? P(F) =
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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