The Gorman Manufacturing Company must decide whther to manufacture a component part at its Milan, Michigan plant or purchase he 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 thousands of dollars):
|
State of Nature |
|
|
Low Demand |
Medium Demand |
High Demand |
| Decsision Alternative |
S? |
S? |
S? |
| Manufacture d? |
-20 |
40 |
100 |
| Purchase d? |
10 |
45 |
70 |
The state of nature probabiliites are P(s1) = 0.35, P(s2) = 0.35 and P(s3) = 0.30
A) use a decision tree to reccomend a decision (I did this dont need A)
B) Use EVPI (Expected value of perfect information) to detmerine whether Gorman should attempt to obtain a better estimate of deamnd.
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 / s1) = 0.10 (Line between F and S is straight line in book but cant do that here so dont see as divide please)
P(F / S2) = .040
P(F / S3) = .0.60
P(U / S1) = .0.90
P(U / S2) = .0.60
P(U / S3) = .0.40
What is the probability that the market research report will be favorable?
D) What is Gorman's optimal decision strategy?
E) What is the expected value of the market research information?
F) What is the efficeny of the information?