The Aero Spad plant manager must
choose a process for assembling parts. The size of the production
run will depend on demand (or order size), which is an uncertain
quantity. The following quantities are believed to be equally
likely: 4,000, 6,000, 8,000, 10,000. The parts will be sold for
$200 each, regardless of quantity ordered. The following data apply
to the three processes of production:
Process A Process B Process C
Setup
Costs
$200000
$160000 $100000
Unit Material Costs
20
30
40
Unit Labor
Costs
20
20
30
1.Using the total profit from selling
the parts as the payoff measure, construct the company’s payoff
table.
2.Determine the expected payoff for
each action. Which process should be used?
3.Use the most likely event criterion
to find the best action.
4.Use the expected regret criterion
to choose the best action.
5. Draw the manufacturer’s decision
tree.
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