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(Solved by Expert Tutors) 3. The Autoridad Metropolitana de Autobuses (AMA) uses 275,000 gallons<


of diesel per year. It may satisfy its fuel requirement either by one annual contract or separate monthly contracts for the year. The cost for the annual contract is $2.25 per gallon. The cost for the monthly contract will average $1.90 if diesel fuel production is increased, but the average cost will be $1.65 if diesel fuel production is not increased. The manager estimates a 0.2 probability of no increase in diesel fuel production.It is also possible to get a professional forecast on diesel fuel production at a cost of $12,000. The manager believes that the following conditional probabilities are realistic appraisals of the forecast?s accuracy.P(forecast indicating no increase | actual no increase) = 0.70P(forecast indicating no increase | actual increase) = 0.1Based on a tree diagram, what is the optimal decision strategy, the associated expected value, and expected value of the forecast? Explain what they mean.

 


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Apr 19, 2020

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