Help please! Deborah Kellogg buys Breathalyzer test sets for the Denver Police D

Question

Help please!

Deborah Kellogg buys Breathalyzer test sets for the Denver Police Department. The quality of the test sets from her two suppliers is indicated in the following table Probability for yton Enterprises 0.25 0.30 0.45 Percent Probability for Winter Da Defective Park Technology 1% 3% 5% 0.70 0.25 0.05 For example, the probability of getting a batch of tests that are 1% defective from Winter Park Technology is 0.70. Because Kellogg orders 10,000 tests per order, this would mean that there is a 0.70 probability of getting 100 defective tests out of the 10,000 tests if Winter Park Technology is used to fill the order. A defective Breathalyzer test set can be repaired for $0.40. Although the quality of the test sets of the second supplier Dayton Enterprises, is lower, it will sell an order of 10,000 test sts for $37 less than Winter Park. a) The correct decision tree (with EMVs rounded to the nearest whole number)for Deborah is shown in Figure 2

Explanation / Answer

EMV is negative, because in this case, we dealing with costs.

EMV of WInter Park Technology = -(1%*0.7+3%*0.25+5%*0.05)*10000*0.4 = $ -68

EMV of Dayton Enterprises = -(1%*0.25+3%*0.30+5%*0.45)*10000*0.4+37 = $ -99

EMV of Winter Park Technology is higher (less negative). Therefore, Deborah's decision should be Winter Park Technology

EMV of selected alternative for Deborah = $ -68

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