Question: This question needs to be done with R language programming A company must decide whether to manufacture a component part in its plant or purchase
This question needs to be done with R language programming
A company must decide whether to manufacture a component part in its plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars):
State of Nature
Decision Alternative Low Demand, s1 Medium Demand,s2 High Demand,s3
Manufacture,d1 -20 40 100
Purchase, d2 10 45 70
The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30.
a.Use a decision tree to recommend a decision.
b.A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows:
P(F|s1) = 0.10P(U|s1) =0.90
P(F|s2) = 0.40P(U|s2) = 0.60
P(F|s3) = 0.60P(U|s3) = 0.40
What is the probability that the market research report will be unfavorable?
c.What is the company's optimal decision strategy?
d.What is the expected value of the market research information?
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