Question
The company is presented with three options :make in house, buy locally, import. There are three...
The company is presented with three options :make in house, buy locally, import. There are three market scenarios : demand may increase, demand may decrease and demand may remain at the present level. The table below gives the expected profit the company will make for each combination. Which option should the company choose if the probability of demand increasing is 0.3, probability of demand decreasing is 0.45 and probability of demand remaining as at present level is 0.25 ?
In question (iv), all other data remaining same,' which option will you choose if the probabilities of all market conditions are unknown ? Why ?
Expected Profits for Each Combination
|
Options |
Demand Scenarios |
||
|
May increase |
May decrease |
May remain at present level |
|
|
Make in house |
100 |
T 20 |
40 |
|
Buy locally |
? 50 |
? 70 |
? 30 |
|
Import |
? 65 |
T 80 |
35 |
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