Cast Iron Construction pc (CIC) is a company specializing in high-rise office blocks. They have recently decided to consider building in third world countries and they have a choice of 2 sites. One is in the earthquake prone island of Tutamolia and the other is in the politically unstable country of Flesomnial.

The building cost of 5m is the same for both countries and it is estimated that that the return over 10 years for each country will also be the same at 20m. However, in Tutamolia, CIC have a choice of strengthening the building at a further cost of 5m. If they do this the probability that the building will collapse if an earthquake occurs is only 0.01, whereas if no strengthening work is done the probability that the building would collapse is 0.7.

The probability that an earthquake will occur in the next 10 years is put at 0.1. If an earthquake does occur any time during the 10 years and the building collapses the company will forfeit the return of 20m, and in addition they will have to pay compensation to the government of 10m.

If CIC decides to build in Flesomnial there is a 20% chance that the country will be taken over by a dictator and the company will not receive any return on its investment.

(a) Draw a decision tree for this problem and use this decision tree to determine the decision that will maximize CIC'c expected return.

(b) The probability that an earthquake will occur is really only a guess. What should this probability become before the decision found in part (a) changes?