Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The XY Manufacturing Company must decide whether to manufacture a component part at its plant or purchase the component part from a supplier. The resulting
The XY Manufacturing Company must decide whether to manufacture a component part at its plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in ten thousand of pesos): State of Nature Low Demand Medium Demand High Demand Decision Alternative $1 $2 Manufacture, dj -100 200 500 Purchase, d2 50 225 350 The state-of-nature probabilities are P(s,) = 0.35, P($2) = 0.35, and P($3) = 0.30. a. Use a decision tree to recommend a decision. b. Use EVPI to determine whether XY Manufacturing Company should attempt to obtain a better estimate of demand. c. A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows: P(F | S,) = 0.10 P(U | 51) = 0.90 P(F | $2) = 0.40 P(U | $2) = 0.60 P(F | $3) = 0.60 P(U | $3) = 0.40 What is the probability that the market research report will be favorable? d. What is XY Manufacturing Company optimal decision strategy? e. What is the expected value of the market research information? f. What is the efficiency of the information? (
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started