Fruit computr company Fruit Computer Company manufactures

Fruit computr company

Fruit Computer Company manufactures memory chips in batches of ten chips. From past experience, Fruit knows that 80% of all batches contain 10% (1 out of 10) defective chips, and 20% of all batches contain 50% (5 out of 10) defective chips. If a good (that is, 10% defective) batch of chips is sent to the next stage of production, processing costs of $1000 are incurred, and if a bad batch (50% defective) is sent on to the next stage of production, processing costs of $4000 are incurred. Fruit also has the alternative of reworking a batch at a cost of $1000. A reworked batch is sure to be a good batch. Alternatively, for a cost of $100, Fruit can test one chip from each batch in an attempt to determine whether the batch is defective.

1. Determine a strategy so Fruit can minimize the expected total cost per batch.
2. Compute the EVSI and EVPI.