The XY Manufacturing Company must decide whether to manufacture acomponent part at its 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 ten thousand of pesos): State of NatureState of NatureState of NatureDecision AlternativeLow DemandS_(1)Medium DemandS_(2)High DemandS_(3)Manufacture, d_(1)-100200500Purchase, d_(2)50225350The 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.

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Answered: The XY Manufacturing Company must…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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The XY Manufacturing Company must decide whether to manufacture acomponent part at its 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 ten thousand of pesos):

	State of Nature	State of Nature	State of Nature
Decision Alternative	Low Demand S_(1)	Medium Demand S_(2)	High Demand S_(3)
Manufacture, d_(1)	-100	200	500
Purchase, d_(2)	50	225	350

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.

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