A home appliance company is interested in marketing an innovative new product. The company must decide whether to manufacture this product essentially on its own or employ a subcontractor to...

A home appliance company is interested in marketing an innovative new product. The company must decide whether to manufacture this product essentially on its own or employ a subcontractor to manufacture it. The file P10_67.xlsx contains the estimated probability distribution of the cost of manufacturing one unit of this new product (in dollars) under the alternative that the home appliance company produces the item on its own. This file also contains the estimated probability distribution of the cost of purchasing one unit of this new product (in dollars) under the alternative that the home appliance company commissions a subcontractor to produce the item.


a.  Assuming that the home appliance company seeks to minimize the expected unit cost of manufacturing or buying the new product, use PrecisionTree to see whether the company should make the new product or buy it from a subcontractor.


b.  Perform a sensitivity analysis on the optimal expected cost. Under what conditions, if any, would the home appliance company select an alternative different from the one you identified in part a?