DANIEL PEÑ PROBLEM 3.

DECISION TRE

Teratextyl, a textile company that has a productive experience in the foreign market of 30 years, must decide if it manuf
the demand of the product. The table sh

Table 3. Decision process for the commercialization of the product

States of nature
Decision alternative
Demand low-utility Demand low average-utility
Manufacture 85 87
Subcontrac 78 81
Buy 82 85
Lease 83 85
Outsource 85 87
Probabilities ∑=1 0.3 0.22

i. Use EVPI to determine if the company should try to get a better estimate of the
demand.
j. A test market study of potential product demand is expected to report a favorable (F) or unfavorable (U) c

P(F/low) = 0,22 P(D/low) = 0,78

P(F/low average) = 0,4 P(D/ low average) = 0,6
P(F/high medium) = 0,33 P(D/ high medium) = 0,67
P(F/high) = 0,42 P(D/high) = 0,58

k. What is the expected value of market research information?

l. What is the efficiency of the information?

DECISIONS TREE
PROBABILITY
0.3
0.22
MANUFACTURE NODE 2
0.25
0.23
0.3

SUBCONTRAC NODE 3
 0.22
SUBCONTRAC NODE 3
0.25
0.23
0.3
0.22
U856 BUY NODE 4
0.25
0.23
0.3
0.22
LEASE NODE 5
0.25
0.23
0.3
0.22
OUTSOURCE NODE 6
0.25
0.23

Expected value is obtained= VEsIP

Node 1= (Max node 2 vs node 3 vs node 4 vs node 5 vs node 6)
MANOFACTURE NODE 2 89.24
SUBCONTRAC NODE 3 82.94
BUY NODE 4 85.75
LEASE NODE 5 86.28
OUTSOURCE NODE 6 88.28

TEOREMA BAYES

P(F/ low) P(F/low average)

Probabilities ∑=1 0.3 0.22
FAVORABLE 0.22 0.4
UNFAVORABLE 0.78 0.6

FAVORABLE
 PREVIOUS PROBABILITIES CONDITIONAL PROBABILITIES
STATE OF NATURE P(Sj) P(F/Sj)
LOW 0.3 0.22
LOW AVERAGE 0.22 0.4
HIGH MEDIUM 0.25 0.33
HIGH 0.23 0.42
P(F)

UNFAVORABLE
PREVIOUS PROBABILITIES CONDITIONAL PROBABILITIES
STATE OF NATURE P(Sj) P(F/Sj)
LOW 0.3 0.78
LOW AVERAGE 0.22 0.6
HIGH MEDIUM 0.25 0.67
HIGH 0.23 0.58
P(F)

PROBABILITY
0.20
0.26
MANUFACTURE NODE 5
0.25
0.29
FAVORABLE
0.20
0.26
SUBCONTRAC NODE 6
0.25
0.29
0.20
0.26
BUY NODE 7
0.25
0.29
0.20
0.26
0.33 OUTSOURCE NODE 8
0.25
0.29
0.20
0.26
OUTSOURCE NODE 9
0.25
0.29

PROBABILITY
0.20

MANUFACTURE NODE 10

UNFAVORABLE
 0.26
MANUFACTURE NODE 10
0.25
0.29
UNFAVORABLE
0.20
0.26
SUBCONTRAC NODE 11
0.25
0.29
0.20
0.26
BUY NODE 12
0.25
0.29
0.20
0.26
0.67 OUTSOURCE NODE 13
0.25
0.29
0.20
0.26
OUTSOURCE NODE 14
0.25
0.29

Value of perfect information: VEIM= l VEcIM - VEsIM l

VEcIM= 89.91 millions of dollars

VEsIM= 89.24 millions of dollars

VEIM 0.67

E= X 100

E= X 100=
EL PEÑA
LEM 3. DECISION TREES, EVPI AND EVMI

market of 30 years, must decide if it manufactures a new product in its main plant, or if on the contrary the purchase from an external supplier. The profits de
the demand of the product. The table shows projected profits, in millions of dollars.

ommercialization of the product

States of nature
Demand high medium-utility Demand high-utility
91 95
85 89
87 90
87 91
89 93
0.25 0.23

ort a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are:

SIONS TREE
DEMAND
85 25.5
87 19.14
89.24
91 22.75
95 21.85
78 23.4

82.94
 81 17.82
82.94
85 21.25
89 20.47
82 24.6
85 18.7
85.75
87 21.75
90 20.7
83 24.9
85 18.7
86.28
87 21.75
91 20.93
85 25.5
87 19.14
88.28
89 22.25
93 21.39

VEIP= [VEcIP - VEsIP]

THE BEST DECISION 89.24 MILLONS OF DOLARS
Expected value with perfect information
Expected value without perfect information

VEcIP= (0,3)*85+(0,22)*87+(0.25)*91+(0,23)*95
VEcIP = 89.24 millions of dollars

VEIP= [89.24 - 89.24] = 0

EMA BAYES
P(F/low) = 0,22 P(D/low) = 0,78
P(F/low average) = 0,4 P(D/ low average) = 0.6
P(F/high medium) = 0,33 P(D/ high medium) = 0,67
P(F/high) = 0,42 P(D/high) = 0,58

P(F/high medium) P(F/high)

0.25 0.23
0.33 0.42
0.67 0.58

BLE
 LATER PROBABILITIES
JOINT PROBABILITIES P(F n Sj) P(Sj/F)
0.07 0.20
0.09 0.26
0.08 0.25
0.10 0.29
0.33

RABLE LATER PROBABILITIES

JOINT PROBABILITIES P(F n Sj) P(Sj/F)
0.23 0.35
0.13 0.20
0.17 0.25
0.13 0.20
0.67

DEMAND
85 16.84
87 22.98
89.91 29.95
91 22.54
95 27.55
78 15.45
81 21.40
83.72
85 21.05
89 25.81
82 16.25
85 22.46
86.35
87 21.55
90 26.10
83 16.45
85 22.46
86.84
87 21.55
91 26.39
85 16.84
87 22.98
88.84
89 22.04
93 26.97

DEMAND
85 16.84

89.91 59.96
 87 22.98
89.91 59.96
91 22.54
95 27.55
78 15.45
81 21.40
83.72
85 21.05
89 25.81
82 16.25
85 22.46
86.35
87 21.55
90 26.10
83 16.45
85 22.46
86.84
87 21.55
91 26.39
85 16.84
87 22.98
88.84
89 22.04
93 26.97

EFFICIENCY OF 0%
ase from an external supplier. The profits depend on
cIP - VEsIP]

*87+(0.25)*91+(0,23)*95
millions of dollars

4 - 89.24] = 0
89.91