Question
A company is contemplating whether to produce a new product. If it decides to produce the product, it must either install a new division which
A company is contemplating whether to produce a new product. If it decides to produce the product, it must either install a new division which needs a cash outlay of 4 lakhs rupees or work overtime with overtime expenses of 1.5 lakhs. If the company decides to install a new division, it needs the approval of government and the company feels that there is 70% chance of getting the approval. A market survey has revealed the following facts regarding the magnitude of sales for the new Product. Magnitude of sales Probability Resulting profits(in lakhs) High 0.45 15 Medium 0.30 7 Low 0.20 3 Nil 0.05 -5(loss) However, by resorting to overtime, the company will not be in a position to meet the high magnitude of sales. It will be able to satisfy upto the level of medium of magnitude only, even if high magnitude of sales result. A) Construct a decision tree using the given data B) Solve the problem to suggest the option to be selected.
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