Determine the expected profits for batch production

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Question: A job shop has received an order for high-precision formed parts. The cost of producing each part is estimated to be $5,000. The customer requires that either 10, or 11 parts be supplied. Each good part sold will produce revenue of $12,000. However, if fewer than 10 good parts are produced, none will be purchased; if more than 11 good parts are produced, the excess will not be purchased. The company can recycle the unpurchased parts and get $1000 for each part. The probability of an individual part being acceptable equals 0.8. Determine the expected profits for batch production quantities of 10, 11, and 12. For each determine the expected value on the transaction. Of the three choices, which is most preferred? Why?

Reference no: EM133664841

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