Consolidated Manufacturing Inc. is a manufacturer of solar panels in Pennsylvania. The manager of company, David...

 

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Consolidated Manufacturing Inc. is a manufacturer of solar panels in Pennsylvania. The manager of company, David Laffer, has to decide the production process that is compatible with demand for its products. David can choose among batch manufacturing, or custom manufacturing, or he can invest in group technology. The demand for company's products will depend on the state of the economy (poor, fair, or excellent) with related probabilities for the company' products, as shown in table below. Batch production (d1) Custom manufacturing (d2) Group technology (d3) Probability Poor -$200,000 $100,000 -$1,000,000 0.1 Fair $1,000,000 $300,000 -$500,000 0.4 States of Nature Good $1,200,000 $700,000 $500,000 0.3 Excellent $1,300,000 $800,000 $2,000,000 0.3 a. Based on the information provided, which decision offers the greatest expected gain? b. Use the information provided to determine the expected value of perfect information. C. An outside foresting firm, IHM Forecasters, using marketing research techniques, can provide more accurate probabilities of market conditions than the ones currently being used. IHM Forecasters charges $50,000 for this service. Is it worth for David Laffer to purchase the forecasting services? Justify your answers (40 points) Consolidated Manufacturing Inc. is a manufacturer of solar panels in Pennsylvania. The manager of company, David Laffer, has to decide the production process that is compatible with demand for its products. David can choose among batch manufacturing, or custom manufacturing, or he can invest in group technology. The demand for company's products will depend on the state of the economy (poor, fair, or excellent) with related probabilities for the company' products, as shown in table below. Batch production (d1) Custom manufacturing (d2) Group technology (d3) Probability Poor -$200,000 $100,000 -$1,000,000 0.1 Fair $1,000,000 $300,000 -$500,000 0.4 States of Nature Good $1,200,000 $700,000 $500,000 0.3 Excellent $1,300,000 $800,000 $2,000,000 0.3 a. Based on the information provided, which decision offers the greatest expected gain? b. Use the information provided to determine the expected value of perfect information. C. An outside foresting firm, IHM Forecasters, using marketing research techniques, can provide more accurate probabilities of market conditions than the ones currently being used. IHM Forecasters charges $50,000 for this service. Is it worth for David Laffer to purchase the forecasting services? Justify your answers (40 points)

Answer rating: 100% (QA)

A To determine the decision that offers the greatest expected gain we need to calculate the expected value for each decision option The expected value is obtained by multiplying each outcome by its co... View the full answer