Problem 4-25The Gorman 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): State of Nature Low DemandMedium DemandHigh DemandDecision Alternatives1s2s3Manufacture, d1-2040100Purchase, d2104570 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. Use a decision tree to recommend a decision.Recommended decision: _____________(manufacture component or purchase component)Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. _____________(yes or No) EVPI: $ ________________ (fill in the blank)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(U | s1) = 0.90P(F | s2) = 0.40 P(U | s2) = 0.60P(F | s3) = 0.60 P(U | s3) = 0.40What is the probability that the market research report will be favorable? If required, round your answer to three decimal places.P(F) = ___________ (fill in the blank)What is Gorman's optimal decision strategy?Decision strategy:If F then _______________ (D1 or D2)If U then ____________ (D1 or D2).What is the expected value of the market research information?Expected value: $ ________________ (fill in the blank)What is the efficiency of the information? If required, round your answer to one decimal place.Efficiency: _____________% (fill in the blank)

Name: Problem 4-25The Gorman Manufacturing Company must decide whether to ma
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Description: Problem 4-25The Gorman 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 foll

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Answered: State of Nature Low Demand Medium…

MATLAB: An Introduction with Applications

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ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

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Problem 4-25

The Gorman 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):

	State of Nature
	Low Demand	Medium Demand	High Demand
Decision Alternative	s₁	s₂	s₃
Manufacture, d₁	-20	40	100
Purchase, d₂	10	45	70

The state-of-nature probabilities are P(s₁) = 0.35, P(s₂) = 0.35, and P(s₃) = 0.30.

Use a decision tree to recommend a decision.

Recommended decision: _____________(manufacture component or purchase component)
Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. _____________(yes or No)

EVPI: $ ________________ (fill in the blank)
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(U | s₁) = 0.90

P(F | s₂) = 0.40 P(U | s₂) = 0.60

P(F | s₃) = 0.60 P(U | s₃) = 0.40

What is the probability that the market research report will be favorable? If required, round your answer to three decimal places.

P(F) = ___________ (fill in the blank)
What is Gorman's optimal decision strategy?

Decision strategy:

If F then _______________ (D1 or D2)

If U then ____________ (D1 or D2).
What is the expected value of the market research information?

Expected value: $ ________________ (fill in the blank)
What is the efficiency of the information? If required, round your answer to one decimal place.

Efficiency: _____________% (fill in the blank)

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