Question
A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of
A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The pay off matrix and cost of the two plants are listed in the table below in millions. The company believes that there is a 69% chance that demand for their products will be high and a 31% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products.
Based on past experience, the company reckons that there is a 63% chance that the survey will be favorable and a 37% chance that it won't The Company believes that if the survey is favorable there is a 92% chance that demand will be high for the products. If the survey is unfavorable there is only a 30% chance that the demand will be high. Build a decision tree for this problem and answer the following questions? Factory Size Large High 200 Low 85 Plant cost 10 Factory Size Small High 100 Low 95 Plant Cost 2
1. What is the expected monetary value of the best decision without the market survey?
2. What is the expected monetary value of the best decision with the market survey?
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