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
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
Chapter12: Sequences, Series And Binomial Theorem
Section12.3: Geometric Sequences And Series
Problem 12.58TI: What is the total effect on the economy of a government tax rebate of $500 to each household in...
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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: - Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.
EVPI: $ f - 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) =
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