Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Transcribed Image Text:с
Grand Canyon University | Privat X Student Portal | Main
Topic 1 - Decision Analysis - Homew
Problem 4-25
eBook
EVPI: $
Decision Alternative
Manufacture, di
Purchase, de
https://v2.cengagenow.com/ilm/takeAssignment/takeAssignmentMain.do?invoker&takeAssignmentSessionLocator=&inprogress=false
P(F)-
State of Nature
Low Demand Medium Demand High Demand
51
-20
10
X
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):
52
40
45
BUS-660 Topic 1 DQ 1
53
100
70
The state-of-nature probabilities are P(S1) 0.35, P(S2) 0.35, and P(s) - 0.30.
a. Use a decision tree to recommend a decision.
Recommended decision: Purchase component
b. Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.
d. What is Gorman's optimal decision strategy?
Decision strategy:
X
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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
P(FI $2) 0.40
P(U I s1) 0.90
P(US2) 0.60
P(F| $3)-0.60
P(UI $3) 0.40
What is the probability that the market research report will be favorable? If required, round your answer to three decimal places.
x +
A
e 3 00 1 G 12
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Transcribed Image Text:irchase, 02
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.
Recommended decision: Purchase component
b. Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.
EVPI: $
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 probabilitie
P(F | S1) = 0.10
P(FS₂) 0.40
P(U| S₁)= 0.90
P(U | $₂) = 0.60
P(F|53) = 0.60
P(U| S3)0.40
What is the probability that the market research report will be favorable? If required, round your answer to three decimal places.
P(F) =
d. What is Gorman's optimal decision strategy?
Decision strategy:
If F then
70
If U then
e. What is the expected value of the market research information?
Expected value: $
f. What is the efficiency of the information? If required, round your answer to one decimal place.
Efficiency:
%
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