ENMF618 cont'd. Page 3 of 3 Q3 Decision Theory (10%) The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product successfully, the company will earn a $50,000 profit; if it is unsuccessful, the company will lose $35,000. In the past, similar products were marketed successfully with 60% of the time. At a cost of $5,000, the effectiveness of the new fertilizer can be tested. If the test result is favourable, there is an 80% of chance that the fertilizer will be marketed successfully. If the test result is unfavourable, there is only a 30% of chance that the fertilizer will be marketed successfully. The probability of obtaining a favourable test result is 60% and an unfavourable test result is 40%. Determine Nitro's optimal strategy. Also find EVSI (expected value of sample information) and EVPI (expected value of perfect information). You are required to draw all the decision trees. [10 marks] The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product successfully, the company will earn a $50,000 profit; if it is unsuccessful, the company will lose $35,000. In the past, similar products were marketed successfully with 60% of the time. At a cost of $5,000, the effectiveness of the new fertilizer can be tested. If the test result is favourable, there is an 80% of chance that the fertilizer will be marketed successfully. If the test result is unfavourable, there is only a 30% of chance that the fertilizer will be marketed successfully. The probability of obtaining a favourable test result is 60% and an unfavourable test result is 40%. Determine Nitro's optimal strategy. Also find EVSI (expected value of sample information) and EVPI (expected value of perfect information). You are required to draw all the decision trees. [10 marks]