Janen Arellano Electronic Products' materials manager, Louiselle Bolla, must determine whether to make or buy a new semiconductor for the wrist TV that the firm is about to produce. One million units are expected to be produced over the life cycle. If the product is made, start-up and production costs of the make decision total $1 million with a probability of 0.4 that the product will be satisfactory and a 0.6 probability that it will not. If the product is not satisfactory, it will have to reevaluate the decision. If the decision is reevaluated, the choice will be whether to spend another $1 million to redesign the semiconductor or to purchase one. Likelihood of success the second time that the decision is made is 0.9. If the second make also fails, the firm must purchase. Regardless of when the purchase takes place, Louiselle's best judgment of cost is that Janen Arellano Electronic Products will pay $0.50 for each purchased semiconductor plus $1 million in vendor development cost.
a) Assuming that Janen Arellano Electronic Products must have the semiconductor (stopping or doing without is not a viable option), what is the best condition?
b) What criteria did you use to make this decision?
c) What is the worst that can happen to the company as a result of this particular decision? What is the best that can happen?