The XY Manufacturing Company must decide whether to manufacture acomponent part at its plant or purchase the component part from a supplier. Theresulting profit is dependent upon the demand for the product. The following payofftable shows the projected profit (in ten thousand of pesos):Decision AlternativeManufacture, d₁Purchase, d₂Low Demand$1-10050State of NatureMedium DemandS2200225High DemandS3500350MAThe 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.b. Use EVPI to determine whether XY Manufacturing Company should attempt to obtaina better estimate of demand.

A decision tree is a diagram that shows all of the possible outcomes of a decision and the…

Answered: The state-of-nature probabilities are…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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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. b. Use EVPI to determine whether XY Manufacturing Company should attempt to obtain a better estimate of demand.