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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):
State of Nature Low Demand Medium Demand High Demand Decision Alternative s 1 s 2 s 3 Manufacture, d 1 -20 40 100 Purchase, d 2 10 45 70
The state-of-nature probabilities are P(s1) = 0.20, P(s2) = 0.20, and P(s3) = 0.60
(a) Use a decision tree to recommend a decision.
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): |
State of Nature | |||||
Low Demand | Medium Demand | High Demand | |||
Decision Alternative | s 1 | s 2 | s 3 | ||
Manufacture, d 1 | -20 | 40 | 100 | ||
Purchase, d 2 | 10 | 45 | 70 |
The state-of-nature probabilities are P(s1) = 0.20, P(s2) = 0.20, and P(s3) = 0.60 |
(a) | Use a decision tree to recommend a decision. |