Consider again the purchasing agent’s decision problem described in Problem 9. Use the PrecisionTree add-in to depict this decision problem as an influence diagram. Then use your influence diagram representation to find the course of action that minimizes the expected total cost of achieving a complete lot of satisfactory microcomputer components. Summarize your results.

Problem 9

The purchasing agent for a microcomputer manufacturer is currently negotiating a purchase agreement for a particular electronic component with a given supplier. This component is produced in lots of 1000, and the cost of purchasing a lot is $30,000. Unfortunately, past experience indicates that this supplier has occasionally shipped defective components to its customers. Specifically, the proportion of defective components supplied by this supplier is well described by the probability distribution given in Table 7.11. While the microcomputer manufacturer can repair a defective component at a cost of $20 each, the purchasing agent is intrigued to learn that this supplier will now assume the cost of replacing defective components in excess of the first 100 faulty items found in a given lot. This guarantee may be purchased by the microcomputer manufacturer prior to the receipt of a given lot at a cost of $1000 per lot. The purchasing agent is interested in determining whether it is worthwhile for her company to purchase the supplier’s guarantee policy.