Economic Screening Procedures Using a Correlated Variable with Multi-Decision Alternatives

Abstract

Economic screening procedures using a correlated variable are developed for selecting markets in situations when there are several markets with different profit/cost structures. It is assumed that the performance variable and the screening variable are jointly normally distributed. Profit models are constructed which involve three profit/cost components: profit from a conforming item, cost from an accepted nonconforming item, and screening inspection cost. Methods of finding the optimal screening procedures are presented and numerical examples are given.