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The following is the payoff matrix for two alternate plans. Assume the probability of the market being receptive is known to be 0 . 6

The following is the payoff matrix for two alternate plans.
Assume the probability of the market being receptive is known to be 0.60(thus, probability of the market being unfavorable is 0.40).
a. Draw a decision tree.
b. Compute the EMV for each of the plans and recommend a plan (a or b).
c. Determine the expected value of perfect information (EVPI).
d. At what probabilities of states of nature S1 and S2 would the EMV(d2)= $25,600?
e. At what probabilities of states of nature S1 and S2 would you be indifferent between in plan a or plan b?
Probabilities 0.60.4
Decision
Alternatives
Market Receptive
S1
Market Unfavorable
S2 EMV
Plan a (d1) $60,000 $8,000
Plan b (d2) $48,000 $12,000

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