4.16 Johnson Marketing is interested in producing and selling an innovative new food processor. The decision they face is the typical "make or buy" decision often faced by manufacturers. On one hand, Johnson could produce the processor itself, subcontracting different subassemblies, such as the motor or the housing. Cost estimates in this case are as follows: Alternative: Make Food Procesor Cost per Unit $35.00 sing Choices $42.50 $45.00 $49.00 Probability 25% gage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. The company also could have the entire machine made by a subcon tractor. The subcontractor, however, faces similar uncertainties regard- ing the costs and has provided Johnson Marketing with the following schedule of costs and probabilities: Alternative Bay Food Processor Cost per Unit $37.00 $43.00 $46.00 $50.00 37% 13% Probability 10% 20% If Johnson Marketing wants to minimize its expected cost of production in this case, should it make or buy? Construct cumulative risk profiles to sup port your recommendation. (Hint: Use care when interpreting the graph!)

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