Based on the cost of making the semiconductor and the cost of purchasing it, the best thing for Tej Dhakar to do is to purchase the semiconductor.
<h3>What are the costs of purchasing the conductor v. making it?</h3>
The cost of purchasing the conductor is:
= Cost of purchasing + (Cost of purchasing x probability that product will not be satisfactory)
= 1,000,000 + (1,000,000 x 0.6)
= $1,600,000
Cost of making the product:
= (Cost of making the product x Probability of success the second time x Probability of failure the first time) + Cost of making product x Probability of success the first time
= (3,000,000 x 0.8 x 0.6) + (3,000,000 + 0.4)
= $2,640,000
In conclusion, firm should purchase the product because it is cheaper to do so.
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