The economy is coming back. John's boss is considering launching a new product.
The plant engineers have stated that if demand is high, the company will make $70 million dollars if it manufacturers the product in house. If the product is manufactured in China, then the company will make $90 million dollars. Doing
nothing the company will make $5 million dollars. On the other hand if demand is low, the net will be a loss of $20 million when the product is made in house,versus a net of $10 million if made in China and $5 million if doing nothing.
a. Marketing estimates the probability of low demand as 35% with a probability of 65% that demand will be high. As the Business Intelligence Analyst what is your estimate of the overall return and best course of action?
b. The situation is said to be too sensitive to call with the current information when a 5% shift in probabilities changes the recommendation. Is this situation too sensitive to call without further information?