T. Bone Puckett, a corporate raider, has acquired a textile company and is contemplating the future of one of its major plants, located in South Carolina. Three alternative decisions are being considered: (1) expand the plant and produce lightweight, durable materials for possible sales to the military, a market with little foreign competition; (2) maintain the status quo at the plant, continuing production of textile goods that are subject to heavy foreign competition; or (3) sell the plant now. If one of the first two5 | P a g e alternatives is chosen, the plant will still be sold at the end of a year. The amount of profit that could be earned by selling the plant in a year depends on foreign market conditions, including the status of a trade embargo bill in Congress. The following payoff table describes this decision situation: DECISION STATE OF NATURE Good foreign competitive position Poor foreign competitive position EXPAND 800, 000 500, 000 MAINTAIN STATUESQUE 1, 300, 000 -150, 000 SELL NOW 320, 000 320, 000 A. Determine the best decision by using the following decision criteria: i. Maximax ii. Maximin iii. Minimax regret iv. Hurwicz 1a = .32 v. Equal likelihood B. Assume that it is now possible to estimate a probability of .70 that good foreign competitive conditions will exist and a probability of .30 that poor conditions will exist. Determine the best decision by using expected value and expected opportunity loss. C. Compute the expected value of perfect information. D. Develop a decision tree, with expected values at the probability nodes. E. T. Bone Puckett has hired a consulting firm to provide a report on future political and market situations. The report will be positive (P) or negative (N), indicating either a good (g) or poor (p) future foreign competitive situation. The conditional probability of each report outcome, given each state of nature, is P (P/g) = .70 P (N/g) = .30 P (P/P) = .20 P (N/p) = .80

Determine the posterior probabilities by using Bayes' rule. F. Perform a decision tree analysis by using the posterior probability obtained in (E).