Question: Supplement A: The demand for a customized knee implants continues to increase at a large orthopedic hospital. The management is evaluating three different alternatives to
Supplement A: 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 outsourcing to a manufacturer. A consultants 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.
| Alternative | Payoff: Profit (in thousands) for Demand Levels | ||
| Low | Moderate | High | |
| Buy One 3D Printer | - 20 | 75 | 100 |
| Buy Two 3D Printers | - 40 | 65 | 135 |
| Outsource | 20 | 45 | 80 |
- Draw a complete decision tree for this problem. Clearly present the decision and event nodes, the associated probabilities, and the payoffs.
- Which alternative should the management choose to achieve the highest expected payoff?
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