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Since the number of customers can be 4, 8, 12, 16 or 20, these are the possible states of nature and these should also be the potential courses of action for the company.
For each course of action – state of nature combination, the payoff element would be equal to
6000*(units sold)-2000*(units manufactured)-testing cost
Opportunity loss matrix:
The opportunity loss or regret elements will be found corresponding to each payoff element by subtracting the payoff element from the maximum payoff corresponding to that state of nature
Opportunity loss table:
Finding expected opportunity loss for each course of action:
EOL =sum of product of opportunity loss elements and their probabilities
minimum if the company manufactures 16 units. Therefore, the company can go for developing the product and manufacture 16 units to minimise EOL.