Table A.2
Use the following to answer the questions below.
A company that is introducing a new product has to choose between four different manufacturing methods, referred to as methods A, B, C and D. Depending on the demand for the product, they forecast different levels of expenses for the year (values are in thousands). The company has identified three possible states of nature for economic growth, and named them High, Medium, and Low.

-Using the information in Table A.2, which alternative is best if further study revealed that the probability of high growth is 0.2, the probability of medium growth is 0.5, and the probability of low growth is 0.3?
A) A
B) B
C) C
D) D

Question

Table A.2
Use the following to answer the questions below.
A company that is introducing a new product has to choose between four different manufacturing methods, referred to as methods A, B, C and D. Depending on the demand for the product, they forecast different levels of expenses for the year (values are in thousands). The company has identified three possible states of nature for economic growth, and named them High, Medium, and Low.
 
-Using the information in Table A.2, which alternative is best if further study revealed that the probability of high growth is 0.2, the probability of medium growth is 0.5, and the probability of low growth is 0.3?
A) A 
B) B 
C) C 
D) D

Quizplus · Accepted Answer

To determine the best alternative, we need to calculate the Expected Monetary Value (EMV) of each manufacturing method. 
EMV of Method A = (0.2 * 300) + (0.5 * 500) + (0.3 * 700) = 500 
EMV of Method B = (0.2 * 200) + (0.5 * 600) + (0.3 * 900) = 570 
EMV of Method C = (0.2 * 400) + (0.5 * 400) + (0.3 * 400) = 400 
EMV of Method D = (0.2 * 100) + (0.5 * 200) + (0.3 * 1600) = 530 
Therefore, method B has the highest EMV and is the best alternative.

Table A.2 Use the Following to Answer the Questions Below