Question

2. The Tamera Manufacturing Company must decide whether to manufacture a component part at its Kokomo plant or purchase the component 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): Low Demand Medium Demand High Demand (s?) (s?) (s?) Manufacture (d?) -20 40 100 Purchase (d?) 10 45 70 Probabilities for the possible levels of demand are P(s?) = 0.35, P(s?) = 0.35, and P(s?) = 0.30. a. Use a decision tree to recommend a decision. b. Use EVPI to determine whether Tamera should attempt to obtain a better estimate of demand. 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 probabilities are as follows: P(F|s?) = 0.1 P(F|s?) = 0.4 P(F|s?) = 0.6 P(U|s?) = 0.9 P(U|s?) = 0.6 P(U|s?) = 0.4 (NOTE: An unfavorable report is most likely to precede low demand.) (NOTE: A favorable report is most likely to precede high demand.) Use the Multiplication Law and a probability \"street map\" to determine the probability that the market research report will be favorable. d. Again, use the Multiplication Law and your probability \"street map\" to find appropriate conditional probabilities. What is Tamera's optimal decision strategy? e. What is the expected value of the market research information?

          2. The Tamera Manufacturing Company must decide whether to manufacture a component part at its Kokomo plant or purchase the component 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):
Low Demand
Medium Demand
High Demand
(s?)
(s?)
(s?)
Manufacture (d?)
-20
40
100
Purchase (d?)
10
45
70
Probabilities for the possible levels of demand are P(s?) = 0.35, P(s?) = 0.35, and P(s?) = 0.30.
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether Tamera should attempt to obtain a better estimate of demand.
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 probabilities are as follows:
P(F|s?) = 0.1
P(F|s?) = 0.4
P(F|s?) = 0.6
P(U|s?) = 0.9
P(U|s?) = 0.6
P(U|s?) = 0.4
(NOTE: An unfavorable
report is most likely to
precede low demand.)
(NOTE: A favorable
report is most likely to
precede high demand.)
Use the Multiplication Law and a probability \"street map\" to determine the probability that the market research report will be favorable.
d. Again, use the Multiplication Law and your probability \"street map\" to find appropriate conditional probabilities. What is Tamera's optimal decision strategy?
e. What is the expected value of the market research information?

2. The Tamera Manufacturing Company must decide whether to manufacture a component part at its Kokomo plant or purchase the component 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):
Low Demand
Medium Demand
High Demand
(s?)
(s?)
(s?)
Manufacture (d?)
-20
40
100
Purchase (d?)
10
45
70
Probabilities for the possible levels of demand are P(s?) = 0.35, P(s?) = 0.35, and P(s?) = 0.30.
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether Tamera should attempt to obtain a better estimate of demand.
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 probabilities are as follows:
P(F|s?) = 0.1
P(F|s?) = 0.4
P(F|s?) = 0.6
P(U|s?) = 0.9
P(U|s?) = 0.6
P(U|s?) = 0.4
(NOTE: An unfavorable
report is most likely to
precede low demand.)
(NOTE: A favorable
report is most likely to
precede high demand.)
Use the Multiplication Law and a probability s̈treet mapẗo determine the probability that the market research report will be favorable.
d. Again, use the Multiplication Law and your probability s̈treet mapẗo find appropriate conditional probabilities. What is Tamera's optimal decision strategy?
e. What is the expected value of the market research information?

Added by Alexis V.

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