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The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier.
The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is
dependent on the demand for the product. The following payoff table shows the projected profit in thousands of dollars:
The stateofnature probabilities are and Do not round your intermediate calculations.
a Use a decision tree to recommend a decision.
b Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. Enter your answer in thousands of dollars. For example, an answer of $ thousands shou
be entered as
Gorman
attempt to obtain a better estimate of demand, as the additional information could be worth up to $
for Gorman.
c A test market study of the potential demand for the product is expected to report either a favorable or an unfavorable condition. The relevant conditional probabilities are as follows
What is the probability that the market research report will be favorable? Hint: We can find this value by summing the joint probability values as follows:
If required, round your answer to three decimal places.
d What is Gorman's optimal decision strategy? Choose the correct option.
A Conduct test market, and manufacture component part, regardless of the market research report
B Conduct test market, and purchase component part, regardless of the market research report
C Conduct test market, and manufacture component part if market is favorable, or purchase component part if market is unfavorable
D Do not conduct test market, and purchase component part
E Do not conduct test market, and manufacture component part
e What is the expected value of the market research information? Enter your answer in thousands of dollars. For example, an answer of $ thousands should be entered as If your answer is zero, enter
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