East West Distributing is in the process of trying to determine where it should schedule next year's production of a popular line of kitchen utensils that it distributes. Manufacturers in four different countries have submitted bids to East West. However, a pending trade bill in Congress will greatly affect the cost to East West due to proposed tariffs, favorable trading status, etc.
After careful analysis, East West has determined the following cost breakdown for the four manufacturers (in $1000s) based on whether or not the trade bill passes:
a. If East West estimates that there is a 40% chance of the bill passing, which country should it choose for manufacturing?
b. Over what range of values for the "bill passing" will the solution in part (a) remain optimal?
a. Using the EV approach: EV(A) = 230, EV(B) = 224, EV(C) = 240; choose Country B (lowest EV)
b. As long as the probability of the bill passing is less than 0.455, East West should choose Country B.
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