In the book Production/Operations Management, William J. Stevenson presents a decision tree concerning a firm€™s decision about the size of a production facility. This decision tree is given in Figure 18.9 (payoffs are given in millions of dollars). Use the decision tree to determine which alternative (build small or build large) should be chosen in order to maximize the expected monetary payoff. What is the expected monetary payoff associated with the best alternative?

Figure 18.9

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$40 Low demand (.4) Horo Do nothing Overtime $40 High demand (.6) -$50 Build small Expand $55 -$10 Do nothing Build large Reduce prices $50 Low demand (.4) High demand (.6) $70