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Question 10 (Decision Tree) A firm has developed a new product X. They can either test the market or abandon the product. The details are
Question 10 (Decision Tree) A firm has developed a new product X. They can either test the market or abandon the product. The details are set out below: Test market cost $50000; likely outcomes are favourable (probability = 0.7) or failure (probability = 0.3). If favourable they could either abandon or produce it when demand is anticipated to be: Low Demand Probability = 0.25 Loss $100000 Medium Demand Probability = 0.6 Profit $150000 High Demand Probability = 0.15 Profit $450000 If the test market indicates failure the project would be abandoned. Abandonment at any stage results in a gain of $30000 from the special machinery used. Required: Draw the decision tree showing the possible cases with probabilities
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