The demand for a customized knee implants continues to increase at a large orthopedic hospital. The...

  

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The demand for a customized knee implants continues to increase at a large orthopedic hospital. The management is evaluating three different alternatives to meet the increasing demand: purchase of one or two 3D printers and the related software or outsourecing to a manufacturer. A consultant's report indicates a 0.20 probability that demand will be low, 0.50 probability that demand will be moderate, and 0.30 probability that demand will be high. Potential profits/losses for different demand levels are presented in the below table. Payoff: Profit (in thousands) for Demand Levels Alternative Low Moderate High Buy One 3D Printer 20 100 75 Buy Two 3D Printers -40 65 135 Outsource 20 45 80 a) Draw a complete decision tree for this problem. Clearly present the decision and event nodes, the associated probabilities, and the payoffs. b) Which alternative should the management choose to achieve the highest expected payoff? The demand for a customized knee implants continues to increase at a large orthopedic hospital. The management is evaluating three different alternatives to meet the increasing demand: purchase of one or two 3D printers and the related software or outsourecing to a manufacturer. A consultant's report indicates a 0.20 probability that demand will be low, 0.50 probability that demand will be moderate, and 0.30 probability that demand will be high. Potential profits/losses for different demand levels are presented in the below table. Payoff: Profit (in thousands) for Demand Levels Alternative Low Moderate High Buy One 3D Printer 20 100 75 Buy Two 3D Printers -40 65 135 Outsource 20 45 80 a) Draw a complete decision tree for this problem. Clearly present the decision and event nodes, the associated probabilities, and the payoffs. b) Which alternative should the management choose to achieve the highest expected payoff?

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