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Question
Tyson Manufacturing (a maker of industrial products) is interested in marketing a new product. The company must decide whether to manufacture this product essentially on its own or employ a subcontractor to manufacture it. Below are two tables that represent the information related to the estimated probability distribution of the cost of one unit of this product under each alternative.Cost under "Make" alternative. Cost under "Buy" alternative.
Cost per unit Probability Cost per unit Probability
$40 0.20 $40 0.15
$45 0.25 $45 0.30
$50 0.35 $50 0.40
$55 0.20 $55 0.15
Assuming that Tyson seeks to minimize the expected unit cost of manufacturing of buying the new product, should the company make the new product or buy it from a subcontractor? Show your work.
Answer
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