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) =

Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter7: Analytic Trigonometry
Section7.6: The Inverse Trigonometric Functions
Problem 94E
Question
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
S1
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---
25
Medium
Demand
$2
55
High
Demand
$3
60
115
85
the component part.
(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(F|s₁) = 0.10
P(F|s₂) = 0.40
P(F|s3) = 0.60
What is the probability that the market research report will be favorable?
P(F) =
Transcribed Image Text: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 S1 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--- 25 Medium Demand $2 55 High Demand $3 60 115 85 the component part. (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(F|s₁) = 0.10 P(F|s₂) = 0.40 P(F|s3) = 0.60 What is the probability that the market research report will be favorable? P(F) =
(d) What is the company's optimal decision strategy?
If F, then d₁. If U, then d₁.
If F, then d₂. If U, then d₁.
If F, then d₂. If U, then d₂.
If F, then d₁. If U, then d₂.
(e) What is the expected value (in thousands of dollars) of the market research information?
EVSI =
thousand dollars
(f) What is the efficiency (as a %) of the information? (Round your answer to one decimal place.)
Efficiency
%
=
Transcribed Image Text:(d) What is the company's optimal decision strategy? If F, then d₁. If U, then d₁. If F, then d₂. If U, then d₁. If F, then d₂. If U, then d₂. If F, then d₁. If U, then d₂. (e) What is the expected value (in thousands of dollars) of the market research information? EVSI = thousand dollars (f) What is the efficiency (as a %) of the information? (Round your answer to one decimal place.) Efficiency % =
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 5 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Algebra & Trigonometry with Analytic Geometry
Algebra & Trigonometry with Analytic Geometry
Algebra
ISBN:
9781133382119
Author:
Swokowski
Publisher:
Cengage
College Algebra
College Algebra
Algebra
ISBN:
9781938168383
Author:
Jay Abramson
Publisher:
OpenStax
Functions and Change: A Modeling Approach to Coll…
Functions and Change: A Modeling Approach to Coll…
Algebra
ISBN:
9781337111348
Author:
Bruce Crauder, Benny Evans, Alan Noell
Publisher:
Cengage Learning
Algebra and Trigonometry (MindTap Course List)
Algebra and Trigonometry (MindTap Course List)
Algebra
ISBN:
9781305071742
Author:
James Stewart, Lothar Redlin, Saleem Watson
Publisher:
Cengage Learning