Question

During a co-op term, a BBA student worked for a company that manufactured screens for cell...

During a co-op term, a BBA student worked for a company that manufactured screens for cell phones. She was asked to determine if a new product, a screen defroster (for use by skiers and others spending time outdoors in the cold) should be manufactured in the current production facility (in-house) or out-sourced. The payoff table (in $ 000) is shown below along with probability information the marketing department provided.

Probability

Action

Event

In-house

Out-source

Recession

0.2

$150

$220

Stable

0.2

$240

$350

Expansion

0.6

$390

$300

  1. Determine the optimal action based on Maximin. (2 mark)






  1. Calculate the Expected Monetary value (EMV) for each action. Based on EMV what is your decision?  

                                                                                                                                                                  













Calculate the Expected Value of Perfect Information (EVPI).

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