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1. Grant Manufacturing in Milan, Michigan is considering the production of a new product for one of the company's major customers. The company must decide
1. Grant Manufacturing in Milan, Michigan is considering the production of a new product for one of the company's major customers. The company must decide between three alternatives: manufacture all components for the product totally in-house, manufacture some of the components in-house to assemble with purchased components or purchase all component parts and just do final assembly in-house. The resulting profit is dependent on demand for the product. The table below shows the estimated profit payoffs. Potential Demand Decision alternatives Low Demand Medium Demand High Demand Manufacture totally in- -20 40 100 house Partial manufacture in- 10 45 70 house and assemble Purchase all components 30 25 55 and assemble in-house Assume that you do not have any probabilities for the Potential Demand. a. What would be recommended if the Pessimistic (Maximin) approach was used? b. What would be recommended if the Optimistic (Maximax) approach was used? c What would be recommended if the Equal Likelihood approach was used? Assume the company's marketing department has done some further research and estimates the probabilities of the demand as: Low 0.40; Medium 0.35; and High 0.25. d. Calculate the EMV for each alternative. e. What would you recommend if the EMV was used? f. Calculate the EV with PI and the EV of PI for this problem. g. How would you interpret the EV of Pl
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