Use This Information to Answer the Following Questions -Refer to the Information Above

question 11

Essay

Use this information to answer the following questions.
A plant manager is considering buying additional stamping machines to accommodate increasing demand.The alternatives are to buy 1 machine,2 machines,or 3 machines.The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not.The payoff table below illustrates the profits realized (in $000's)based on the different scenarios faced by the manager.
$$\begin{array} { l c c } \text { Alternative } & \text { Bid Accepted } & \text { Bid Rejected } \\\hline \text { Buy 1 machine } & \$ 10 & \$ 5 \\\text { Buy 2 machines } & \$ 30 & \$ 4 \\\text { Buy 3 machines } & \$ 40 & \$ 2\end{array}$$
-Refer to the information above.Assume that ABC Inc.has hired a marketing research firm that provided additional information regarding next year's demand.Suppose that the probabilities of low and high demand are assessed as follows: P(Low)= 0.4 and P(High)= 0.6.
a.Develop a decision tree for this problem.
b.Analyze the decision tree and determine which alternative should be chosen.
c.Using the expected opportunity loss (EOL)criterion,which alternative should be chosen?

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Definitions:

Travel Time

The duration taken to move from one location to another.

Probability

A quantity indicating the odds or possibility of a specific event taking place, denoted as a figure between 0 and 1.

Uniformly Distributed

In relation to statistical distributions, it signifies a scenario where values are spread out in such a way that every value within a certain range is equally probable.

Travel Time

The duration required to move from one location to another.