Zhu Manufacturing is considering the introduction of a family of new products. Long- term demand for the product group is somewhat predictable, so the manufacturer must be concerned with the risk of choosing a process that is inappropriate. Faye Zhu is VP of operations. She can choose among batch manufacturing or custom manufacturing, or she can invest in group technology. Faye won€™t be able to forecast demand accurately until after she makes the process choice. Demand will be classified into four compartments: poor, fair, good, and excellent. The table below indicates the payoffs (profits) associated with each process/ demand combination, as well as the probabilities of each long-term demand level:

a) Based on expected value, what choice offers the greatest gain?
b) What would Faye Zhu be willing to pay for a forecast that would accurately determine the level of demand in thefuture?

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FAIR GOOD EXCELLENT Probability Batch Custom Group technology1,000,000500,000 500,000 $2,000,000 - 200,000 1,000,000 1,200,000 $1,300,000 S100,000 300,000 700,000 800,000