The Gorman Manufacturing Company must decide whether to manufacture a component 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 S1 Medium DEmand S2 High demand S3 Manufacture, d1 -100 200 500 Purchase, d2 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. c. What is the probability that the market research report will be favorable? 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
The Gorman Manufacturing Company must decide whether to manufacture a component 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 S1 |
Medium DEmand S2 |
High demand S3 |
| Manufacture, d1 | -100 | 200 | 500 |
| Purchase, d2 | 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.
c. What is the probability that the
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
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d. What is XY Manufacturing Company optimal decision strategy?
e. What is the expected value of the
f. What is the efficiency of the information?
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