Determine the expected cost with perfect information

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Reference no: EM13188801

Zingtronics Corp has completed the design of a new - Graphic display for the computer systems and is about to decide on whether is should produce one of the major components internally or subcontract it to another firm. the Advisability of which action to take depends on how the market will respond to the new product.If demand is high, then its worthwhile to make the extra investment for special facilities and equipment needed to produce the component internally. for Low demand, it is preferable to sub-contract. the analyst assigned to study the problem has produced the following information on costs ( in thousands of dollars ) and probability estimates of future demand for next 5-year period:

Future Demand
Action Low Average High

Produce $140 $120 $90
Subcontract $100 $110 $160
Probability 0.10 0.60 0.30

a) Prepare a decesion tree that describes the structure of the problem
b) Select the best action on the basis of the initial probability estimates for future demand.
c) Determine the expected cost with Perfect Information (i.e. Knowing Future demand Exactly )

Reference no: EM13188801

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