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A manufacturing company must decide whether to manufacture a component part or purchase the component from a supplier. The resulting profit depends on the demand for the product. Demand can be Low, Medium or High. The company has estimated the payoff (in thousands of dollars) as follows. The payoffs for manufacturing will be -20, 40, and 100 under Low, Medium and High demands respectively. For purchasing, the pay offs will be 10, 45 and 70 for Low, Medium and High demands. Construct a payoff table.
What is the optimum decision under the conservative approach?
Manufacture, Purchase, or Neither?
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