The Ronco Manufacturing Company must decide whether it shoul

The Ronco Manufacturing Company must decide whether it should

purchase a component part from a supplier or manufacture the component at its Arlington plant. If demand

is high, it would be to Ronco\'s advantage to manufacture the component. However, if demand is low, the

manufacturing cost would be high due to underutilization of equipment. The probabilities and projected

profit, in millions of dollars, for Ronco\'s manufacture or buy decision is as follows:

Projected Profit LOW High

Manufacture componet -10 80

Buy component 35 50

Probability 50 50

For $1 million, the company can undertake (prior to making a decision) a test market study of potential

demand that will report either a favorable or unfavorable market condition. The following probabilities

apply to this report

P(favorable report) =.36 and P(unfavorable report) = .64

P(High demand, if report favorable) = 0.8

P(High demand, if report unfavorable) = 0.35

(a) On the next page, neatly draw the decision tree for this problem and clearly label all branches,

probabilities, and payoffs.

(b) Use the foldback method to determine the optimal strategy.

(c) Describe the optimal strategy in your own words.

(d) What is the EMV of the optimal strategy? [$________________]

(e) What is the most Ronco should pay for the test market report? [$______________________]

Explain your reasoning.

I donot make the decision tree. Can i solve the remaining question