The Quality Control Manager for the NKA Inc

question 50

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. Based on historical data,if the lot is 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.
After inspecting it,he determines that the unit is defective.If the inspected item is defective,determine which alternative action the quality control manager should choose.

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits one misses out on.

Natural Monopolies

A situation in which a single firm can supply a product or service to an entire market at a lower cost than could two or more firms, leading to a market structure where only one business exists.

Service The Market

involves addressing the needs and desires of a particular market segment by offering products, services, or solutions that cater specifically to that segment's demands.

Negative Externalities

Uncompensated adverse effects that an individual or firm's activity imposes on others, not accounted for in the market price.