Ravex Yacht has developed a new cabin cruiser which they have earmarked for the medium to large boat market. A market analysis suggests a 30% probability of annual sales being 5000 boats, 40% probability of 4000 annual sales, and 30% probability of 3000 annual sales. The firm can go into limited production where variable costs are 10000$ per boat and fixed costs are 800,000$ annually. Or the firm can go into full scale production where variable costs are $9000 per boat and fixed costs are 5,000,000$

annually.

a. Construct a decision tree for the situation.

b. Compute payoffs and probabilities.

c. If the boat is to be sold at $11,000, should the company go into limited or full scale production such that the profits are maximized?