a)BP decides to narrow down the location options to two: Falmouth and St Ives. After some pressure from shop owners the Cornish Tourist Board (CTB) has agreed to implement a 'Visit Falmouth' advertising campaign which, if successful, will increase the probability of High tourist numbers to 45% and reduce that of Low tourist numbers to 25% in Falmouth only; if it is unsuccessful there will be no change to tourist numbers. CTB estimates that there is a 70% likelihood of success of the campaign. Separate from this, BP has heard that an artisan bakery from London (Craft Bake) is thinking about opening premises in St Ives as part of countrywide expansion plans. They understand that there is a 20% probability that Craft Bake will open a rival store there. If they do, BP's profits in St Ives will fall by 10% (from the level in the original payoff matrix) under all states of nature.

i.A partially completed template of the decision tree for this problem is provided, below. Calculate the expected value at each node (A, B, C, D, E, F, G) showing all your workings(nb: You will need to identify the probabilities for each branch and final payoffs to be able to do it

(14 marks)

ii.Which choice of location would you advise (Falmouth or St Ives)?

(2 marks)

iii.Would your advice be the same if you were told that BP was 'risk loving'? Explain why (or why not).

(3 marks)

A High (0.35) Falmouth E B Med (0.30) Low (0.35) G C St Ives F Craft Bake High (0.35) Opens D Med (0.30) Low (0.35) (Total: 35 marks)