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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 expected value to recommend a decision. b.Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.

The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a.Use expected value to recommend a decision. b.Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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 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 demnad 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.Use expected value to recommend a decision.

b.Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.

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