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): Decision State of Nature Alternative Low Demand (S1) Medium Demand (S2) High Demand )S3) Manufacture, d(1) -20 40 100 Purchase, d(2) 10 45 70 The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30 Use expected value 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 upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): Decision State of Nature Alternative Low Demand (S1) Medium Demand (S2) High Demand )S3) Manufacture, d(1) -20 40 100 Purchase, d(2) 10 45 70 The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30 Use expected value to recommend a decision.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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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):
Decision | State of Nature | ||
Alternative | Low Demand (S1) | Medium Demand (S2) | High Demand )S3) |
Manufacture, d(1) |
-20 | 40 | 100 |
Purchase, d(2) | 10 | 45 | 70 |
The state-of-nature probabilities are P s1= 0.35, P s2= 0.35, and P s3= 0.30
Use expected value to recommend a decision.
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