Use decision tree to recommend a decision

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Reference no: EM131228387

The Gorman Manufacturing Company must decide whether to purchase a component part from a supplier or to manufacture the component at its own plant. If demand is high, it would be to Gorman's advantage to manufacture the component. If demand is low, howeverm Gorman's unit manufacturing cost will be high because of underutilization of equipment.

The projected profit in thousands of dollars for Gorman's make-or-buy decision is as follows:

Decision Low Demand Medium High

Manufacture component $220 $40 $100

Purchase component $210 $45 $70

The state of nature have these probabilites:

P(low demand) = .35, P(medium demand) = .35, and P(high demand) = .30.

Use a decision tree to recommend a decision.

Reference no: EM131228387

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