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 on the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): State of Nature
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 on 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
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
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