A First Course in Probability (10th Edition)
10th Edition
ISBN: 9780134753119
Author: Sheldon Ross
Publisher: PEARSON
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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 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 | |
| Decision Alternative | s1 | s2 | s3 |
| Manufacture, d1 | -20 | 40 | 100 |
| Purchase, d2 | 10 | 45 | 70 |
The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30.
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 | P(U | s1) = 0.90 | |
| P(F | s2) = 0.40 | P(U | s2) = 0.60 | |
| P(F | s3) = 0.60 | P(U | s3) = 0.40 |
What is the efficiency of the information? If required, round your answer to one decimal place.
Efficiency:
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