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. 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 1. What is Gorman's optimal decision strategy? Decision strategy: If F then . If U then . 2. What is the expected value of the market research information? Expected value: $ 3. What is the efficiency of the information? If required, round your answer to one decimal place. Efficiency:
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.
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 |
1. What is Gorman's optimal decision strategy?
Decision strategy:
If F then .
If U then .
2. What is the
Expected value: $
3. What is the efficiency of the information? If required, round your answer to one decimal place.
Efficiency:
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