Question
Ron Miller, owner of Miller Marketing is considering three options for his new product development: continuing with its own staff, hiring an outside vendor to
Ron Miller, owner of Miller Marketing is considering three options for his new product development: continuing with its own staff, hiring an outside vendor to do the managing (outsourcing), or a combination of its own staff and outside vendor.The payoff table is as follows:
Decision Alternatives
Good economy (S1)Fair economy (S2)Poor economy (S3 )
In house, D160,00060,00050,000
Outsourcing, D280,00080,00030,000
Combination, D3100,00070,00010,000
If nothing is known about the demand probabilities
a.Using conservative approach, specify the best decision alternative
b.Using the Minimax regret approach create the opportunity Loss/regret table and
Specify the best decision alternative.
Suppose the probabilities for Good, Fair, and Poor Economy are 30%, and 40% respectively,
c.Construct a Decision Tree and solve it using expected value approach.What is the recommended decision alternative?
d.Calculate the expected value of the perfect information (EVPI)?
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