The XY Manufacturing Company must decide whether to manufacture acomponent part at its plant or purchase the component part from a supplier. Theresulting profit is dependent upon the demand for the product. The following payofftable shows the projected profit (in ten thousand of pesos):Decision AlternativeManufacture, d₁Purchase, d₂Low Demand$1-10050State of NatureMedium DemandS2200225High DemandS3500350MAThe state-of-nature probabilities are P(s₁) = 0.35, P(s₂) = 0.35, and P(S3) = 0.30.a. Use a decision tree to recommend a decision.b. Use EVPI to determine whether XY Manufacturing Company should attempt to obtaina better estimate of demand.

A decision tree is a diagram that shows all of the possible outcomes of a decision and the…

Answered: The state-of-nature probabilities are…

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter19: Pricing Concepts

Section: Chapter Questions

Problem 6DRQ

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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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The state-of-nature probabilities are P(S₁) = 0.35, P(S₂) = 0.35, and P(S3) = 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.