Refer to Problem 12. Ozgun Demirag of Feminine Fashions is reluctant to assign probabilities to the different states of nature (market conditions). She asks for your help in determining which alternative among the three types of stores small, medium, or large store—she should build for a range of probabilities of favorable market conditions, i.e., P (Favorable Market). Help Ozgun make a decision by performing a sensitivity analysis for P (Favorable Market).

Data from problem 12

Ozgun Demirag, the owner of a high-end U.S. apparel store, Feminine Fashions, is planning to open another facility in her hometown of Izmir, Turkey. Demirag can open a large store, a small store, or, to hedge her bets, she could open a medium-sized store. The market for high-end apparel in Izmir could be favorable or unfavorable. If the market is favorable, a large store will earn Ozgun a payoff of $200,000. Nevertheless, if the market is unfavorable, she will suffer a net loss of $180,000. If she opens a medium-sized store and the market is unfavorable, her loss will be $100,000. By contrast, a favorable market for a medium-sized store will generate a payoff of $140,000. A small store with a favorable market will result in a payoff of $ 60,000 but a payoff of –$20,000 if the market is unfavorable. The probability of a favorable market is 0.60 and that of an unfavorable market is 0.4.