Question
Problem 2 (Must solve this problem with TreePlan in Excel) Fenton and Farrah Friendly, husband-and-wife car dealers, are soon going to open a new dealership.
Problem 2 (Must solve this problem with TreePlan in Excel)
Fenton and Farrah Friendly, husband-and-wife car dealers, are soon going to open a new dealership. They have three offers: from a foreign compact car company, from a U.S.-producer of full-sized cars, and from a truck company. The success of each type of dealership will depend on how much gasoline is going to be available during the next few years. The profit from each type of dealership, given the availability of gas, is shown in the following payoff table:
Dealership | Gasoline Availability | |
Shortage (0.6) | Surplus (0.4) | |
Compact cars | $300,000 | $150,000 |
Full-sized cars | -100,000 | 600,000 |
Trucks | 120,000 | 170,000 |
The Friendlys are considering hiring a petroleum analyst to determine the future availability of gasoline. The analyst will report that either a shortage or a surplus will occur. The probability that the analyst will indicate a shortage, given that a shortage actually occurs is .90; the probability that the analyst will indicate a surplus, given that a surplus actually occurs is .70.
- Construct a decision tree to determine the optimal strategy for Friendlys using TreePlan in Excel.
- Determine the maximum amount the Friendlys should pay for the analysts services. (EVSI)
- Compute the efficiency of the sample information for the Friendly car dealership.
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