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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.   Use a decision tree to recommend a decision.Recommended decision:    Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.   EVPI: $  fill in the blank 3 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 probability that the market research report will be favorable? If required, round your answer to three decimal places.P(F) = fill in the blank 4 What is Gorman's optimal decision strategy?Decision strategy:If F then    .If U then    . What is the expected value of the market research information?Expected value: $  fill in the blank 7 What is the efficiency of the information? If required, round your answer to one decimal place.Efficiency: fill in the blank 8%

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.   Use a decision tree to recommend a decision.Recommended decision:    Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.   EVPI: $  fill in the blank 3 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 probability that the market research report will be favorable? If required, round your answer to three decimal places.P(F) = fill in the blank 4 What is Gorman's optimal decision strategy?Decision strategy:If F then    .If U then    . What is the expected value of the market research information?Expected value: $  fill in the blank 7 What is the efficiency of the information? If required, round your answer to one decimal place.Efficiency: fill in the blank 8%

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 35P
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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.

 

  1. Use a decision tree to recommend a decision.

    Recommended decision: 
     


  2. Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.

     


    EVPI: $  fill in the blank 3

  3. 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 probability that the market research report will be favorable? If required, round your answer to three decimal places.

    P(F) = fill in the blank 4

  4. What is Gorman's optimal decision strategy?

    Decision strategy:

    If F then 
     
    .

    If U then 
     
    .

  5. What is the expected value of the market research information?

    Expected value: $  fill in the blank 7

  6. What is the efficiency of the information? If required, round your answer to one decimal place.

    Efficiency: fill in the blank 8%
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