A manufacturing company introduces two product alternatives. The table below provides profit payoffs in thousands of dollars.

$$\begin{array} { | c | c | c | c | }
\hline { \text { Bet on } } && { \text { State of Nature (Demand) } } \
\hline & \mathrm { Up } & \text { Stable } & \text { Down } \
\hline \text { Product A } & 11 & 8 & 8 \
\hline \text { Product B } & 8 & 10 & 12 \
\hline
\end{array}$$ The probabilities for the state of nature are P(Up) = 0.35, P(Stable) = 0.35, and P(Down) = 0.30.
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the manufacturing company should attempt to obtain a better estimate of the response.

Question

A manufacturing company introduces two product alternatives. The table below provides profit payoffs in thousands of dollars.
​
​ $$\begin{array} { | c | c | c | c | } 
\hline { \text { Bet on } } && { \text { State of Nature (Demand) } } \
\hline  & \mathrm { Up } & \text { Stable } & \text { Down } \
\hline \text { Product A } & 11 & 8 & 8 \
\hline \text { Product B } & 8 & 10 & 12 \
\hline
\end{array}$$ The probabilities for the state of nature are P(Up) = 0.35, P(Stable) = 0.35, and P(Down) = 0.30. 
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the manufacturing company should attempt to obtain a better estimate of the response.

Quizplus · Accepted Answer

The Answer of A manufacturing company introduces two product alternatives. The table below provides profit payoffs in thousands of dollars.
​
​ $$\begin{array} { | c | c | c | c | } 
\hline { \text { Bet on } } && { \text { State of Nature (Demand) } } \
\hline  & \mathrm { Up } & \text { Stable } & \text { Down } \
\hline \text { Product A } & 11 & 8 & 8 \
\hline \text { Product B } & 8 & 10 & 12 \
\hline
\end{array}$$ The probabilities for the state of nature are P(Up) = 0.35, P(Stable) = 0.35, and P(Down) = 0.30. 
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the manufacturing company should attempt to obtain a better estimate of the response.

A Manufacturing Company Introduces Two Product Alternatives The Probabilities for the State of Nature Are P(Up) =