The Quality Control Manager for the NKA Inc Based on Historical Data,if the Lot Is of Poor Quality,40

question 52

Essay

The quality control manager for the NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)the shipment (lot)of incoming material.The historical data indicates that there is 30% chance that the lot is poor quality (S₁),50% chance that the lot is fair quality (S₂),and 20% chance that the lot is good quality (S₃).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars. $$\begin{array} { l c c c } & { \text { States of Nature } } \\\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \\\text { Accept } & 20 & 30 & 90 \\\text { Further analyze } & 60 & 70 & 15 \\\text { Reject } & 80 & 50 & 30\end{array}$$ Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.
-A decision maker has prepared the following decision tree.There are two main decision alternatives (A and B).The probabilities for the states of nature are as follows: P(H)= .3,P(M)= .5,P(L)= .2,P(S)= .25,P(P)= .75.Calculate the highest expected profit for the decision maker and determine which of the two alternatives the individual should select.