Question
D-Bites is also preparing to set up branches of D-Bites burger stalls around Klang Valley. They could set up 50 stalls, 100 stalls or 200
D-Bites is also preparing to set up branches of D-Bites burger stalls around Klang Valley. They could set up 50 stalls, 100 stalls or 200 stalls but the profit or loss will depend solely on the demand of the market and the economy of the country, which could be a good market or bad market. D-Bites believes that the chance of a good market or bad market is 50-50. The investments to set up stalls are high and D-Bites could lose a huge amount of investment if the market is bad but would make a substantial profit if the market is good. The payoff table for this investment problem is shown in the table below.
| Good Market | Bad Market |
50 stalls | 300,000 | -100,000 |
100 stalls | 1,000,000 | -400,000 |
200 stalls | 2,000,000 | -1,500,000 |
D-Bites would like to be sure that their investment would bring a good return and hence, consider hiring a consultant to conduct a market survey before embarking on setting up branches in Klang Valley. The consultant informed D-Bites that the probability of a positive market research given a good market is 0.8. However, the consultant has also warned D-Bites that there are 0.75 chances of having a negative market research given a bad market. The cost of market research is RM50, 000.
1a. Draw a decision tree to depict the problem faced by D-Bites.
1b. Calculate the revised probability for the information given by the consultant.
1c. Calculate the EMV and determine the best decisions for D-Bites
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