The decision tree shown below represents the decision problem for Thompson Lumber Company, which is discussed in detail in the textbook (chapter 9). Thompson Lumber may expand its production capacity by building a large plant, or a small plant. Because the net profit related to each decision is affected by an uncertain market condition, the company could conduct a market survey at a cost of $20,000. As shown in the graph, it is more likely to have a favorable market if the survey generates a positive result, and vice versa. In the decision tree, the decisions, or states of nature, are indicated on the branches, and probabilities are shown in brackets. The values shown at the end-nodes are the net profit in $1000.

a) Calculate the EMV values for the chance nodes from 1 to 7, and the decision nodes from A to D. Please show your calculation of the expected value for each of the chance nodes and clearly state the maximum expected payoff.

b) What decision strategy should Thompson Lumber choose to maximize its expected net profit?

c) Suppose the cost of market survey

ASSIGNMENT 1 C 1206-A5-16F Quantitative Vienna Pastry Has Recently Op x Jim Sellers Is Considering Ma X C file:///Users/Ryan/Downloads/1 206-A5-16F.pdf ASSIGNMENT 1 3. The decision tree shown below represents the decision problem for Thompson Lumber Company, which is discussed in detail in the textbook (chapter 9). Thompson Lumber may expand its production capacity by building a large plant, or a small p t. Because the net profit related to each decision is affected by anuncertain market condition, the company could conduct a market survey at a cost of S20,000. As shown in the graph, it is more likely to have a favorable market ifthe survey generates a positive result, and vice versa. In the decision tree, the decisions, or states of nature are indicated on the branches, and probabilities are shown in brackets. The values shown at the end-nodes are the net profit in $1000 a) Calculate the EMV values for the chance nodes from 1 to 7, and the decision nodes from A to D. Please show your calculation of the expected value for each of the chance nodes and clearly state the maximum expected payoff. b) What decision strategy should Thompson Lumber choose to maximize its expected net profit? Assignment #5 11/15/2016 MGSC 1206.1 Introduction to Quantitative Methods II Fall 201 c) Suppose the cost of market survey has increased. What is the maximum amount that Thompson Lumber would be willing to spend on it? Second Decision Favorable Market (0.75) All values are in 000. Point First Decision Unfavorable Market (0,25 Point 220 Favorable Market (0.75 230 Unfavorable Market (0.2S Favorable Market (0,25) Unfavorable Market (0,75 220 Favorable Market (0.25 Favorable Market(0.S) Unfavorable Market (0.5) -200 Favorable Market (0.5) 250 Unfavorable Market (0.5) No Plant