Chung Manufacturing is considering the introduction of a family of new products. Long-term demand for the product group is somewhat predictable, so the manufacturer must be concerned with the risk of choosing a process that is inappropriate. Chen Chung is VP of operations. He can choose among batch manufacturing or customer manufacturing, or he can invest in group technology. Chen won€™t be able to forecast demand accurately until after he makes the process choice. Demand will be classified into four compartments: poor, fair, good, and excellent. The table below indicates the payoffs (profits) associated with each process/demand combination, as well as the probabilities of each long-term demand level:

(a) Based expected value, what choice offers the greatest gain?
(b) What would Chen Chung be willing to pay for a forecast that would accurately determine the level of demand in thefuture?

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Poor Fair Good Excellent 4 .3 Batch Custom Group -200,000 $1,000,000 S1,200,000 $1,300,000 100,000 300,000 700,00800,000 technology-1,000,000500,000 S 500,000 $2,000,000