Jim Sellers is thinking about producing a new type ofelectric razor for men. If the market were favorable he would get areturn of $100,000, but if the market for this new type of razorwere unfavorable, he would lose $60,000. Since Ron Bush is agood friend of Jim Sellers, Jim is considering the possibility ofusing Bush Marketing Research to gather additional informationabout the market for the razor. Ron has suggested that Jimeither use a survey or a pilot study to test the market. Thesurvey would be a sophisticated questionnaire administered to atest market. It will cost $5,000. Another alternative isto run a pilot study. This would involve producing a limitednumber of the new razors and tying to sell them in two cities thatare typical of American cities. The pilot study is moreaccurate e but is also more expensive. It will cost$20,000. Ron Bush has suggested that it would be a good ideafor Jim to conduct either the survey or the pilot before Jim makesthe decision concerning whether to produce the new razor. ButJim is not sure if the value of the survey or the pilot is worththe cost.

Jim estimates that the probability of a successful marketwithout performing a survey or pilot study is0.5. Furthermore, the probability of a favorable survey resultgiven a favorable market for razors is 0.7, and the probability ofa favorable survey result given an unsuccessful market for razorsis 0.2. In addition, the probability of an unfavorable pilotstudy given an unfavorable market is 0.9, and the probability of ann unsuccessful pilot study result given a favorable market forrazors is 0.2.

1. Draw the decision tree for this problem without the probabilityvalues.
2. Computer the revised probabilities needed to complete thedecision, and place these values in the decision tree.
3. What is the best decision for Jim? Use Expected MonetaryValue (EMV) as the decision criterion.