## (solution) Please do in Excel. (a) Discuss how the level of product demand

(a) Discuss how the level of product demand volume and product standardization relates to the selection of a suitable manufacturing process. Give an example each  for two typical processes in a Product-Process Matrix.A manager must decide how many machines of certain type to buy. The machines will be used to manufacture a new gear for which there is increased demand. The manager has narrowed the decision to two alternatives: buy one machine or buy two. If only one machine is purchased and demand is more than it can handle, a second machine can be purchased at a later time. There are only two possible demand outcomes: -high or low. The estimated probability of low demand is .20. The net present value associated with the purchase of two machines initially is \$75,000 if demand is low and \$130,000 if demand is high. The net present value for one machine and low demand is \$90,000. If demand is high, there are three options. One option is to do nothing, which would have a net present value of \$90,000. A second option is to subcontract; that would have a net present value of \$110,000. The third option is to purchase a second machine. This option would have a net present value of \$100,000.

Draw the decision tree to depict this problem

Analyze the Decision Tree and recommend how many machines should the manager purchase initially?

What is the Expected Value of Perfect Information in this problem? Please show your work clearly.

Using a clearly drawn graph (electronically) over range of probability of high demand [Prob (high) = p] would you recommend which decision alternative over another? Please show your calculations of each EMV in terms of ?p?.

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Sep 13, 2020

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