Consider a variation of the PDC decision tree shown in Figure. The company must first decide whether to undertake the market research study. If the market research study is conducted, the outcome will either be favorable (F) or unfavorable (U). Assume there are only two decision alternatives, d1 and d2, and two states of nature, s1 and s2. The payoff table showing profit is as follows:

THE PDC DECISION TREE WITH BRANCH PROBABILITIES

a. Show the decision tree.
b. Using the following probabilities, what is the optimal decisionstrategy?

Transcribed Image Text:

State of Nature Decision Alternative di 100 400 300 200 Strong (s) Weak (s Strong (s) Weak (32) Strong ( weak fh) Strong s Small (d) OXX 094 14 Favorable Report o.T Medium (d 0065 20 0.94 Large (d) 0069 Market Research Study Smull d 035 8 Weak例 0.65 Strong () 035 14 Unfavorabled) Report a.23 Weak 1s2) 0.65 O.GS5 Strong (s) ー20 Large (d) Weak (32 0.65 Strong (s Small (d) 0.80 Weak (s 023 Strong (s) 14 No Market Researclh Study Medium d Weak (2)5 0.20 Strong ( 20 0.80 Large (ds) Weak 1s2) 0.20-9