Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Tim wishes to buy a used van, and decides to buy a three-year-old VW .Adventrwagen. He surveys used van dealers in the area, and finds

image text in transcribed

Tim wishes to buy a used van, and decides to buy a three-year-old VW .Adventrwagen. He surveys used van dealers in the area, and finds one that sells vans for S5500. The dealer, however, offers to sell him one particular van for $5000. Just before closing the deal. Tin overhears a conversation with the dealer. It turns out that 20% of the vans in his lot were "lemons" and the rest were "peaches." The dealer repaired all the vans in the lot, except for the van he has now offered to Tim. Lemons have exactly 6 defects in the 10 main systems in the van, and the peaches have only 1. The cost for the repairs equals S200 for a single defect, and $1000 total for all defects. All defects will appear at the same time, soon after Tim buys the van. Treat Tim as risk neutral over the prospects in this problem Tim can take the van to a mechanic, but only for one hour. The mechanic can run one of the following three testing programs in one hour. Test the steering system alone for $45. Test the fuel and electrical systems for a total of S65 . Two-test sequence: test the transmission at a cost of S50. with the option to test the differential at a cost of $20 after seeing the results of the transmission test. Note: Create quality distinctions for the following problems, or else the diagram and the tree will be huge and ugly. Just because I use a distinction in the problem statement does not mean you have to use the same distinction. g. Draw a decision diagram representing Tim's decision to purchase a test. h. Draw a decision tree representing Tim's decision to purchase a test. Using this tree, find Tim's best alternative and Tim's CE for his decision Tim wishes to buy a used van, and decides to buy a three-year-old VW .Adventrwagen. He surveys used van dealers in the area, and finds one that sells vans for S5500. The dealer, however, offers to sell him one particular van for $5000. Just before closing the deal. Tin overhears a conversation with the dealer. It turns out that 20% of the vans in his lot were "lemons" and the rest were "peaches." The dealer repaired all the vans in the lot, except for the van he has now offered to Tim. Lemons have exactly 6 defects in the 10 main systems in the van, and the peaches have only 1. The cost for the repairs equals S200 for a single defect, and $1000 total for all defects. All defects will appear at the same time, soon after Tim buys the van. Treat Tim as risk neutral over the prospects in this problem Tim can take the van to a mechanic, but only for one hour. The mechanic can run one of the following three testing programs in one hour. Test the steering system alone for $45. Test the fuel and electrical systems for a total of S65 . Two-test sequence: test the transmission at a cost of S50. with the option to test the differential at a cost of $20 after seeing the results of the transmission test. Note: Create quality distinctions for the following problems, or else the diagram and the tree will be huge and ugly. Just because I use a distinction in the problem statement does not mean you have to use the same distinction. g. Draw a decision diagram representing Tim's decision to purchase a test. h. Draw a decision tree representing Tim's decision to purchase a test. Using this tree, find Tim's best alternative and Tim's CE for his decision

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Accounting

Authors: Frederick D. S. Choi, Gary K. Meek

7th Edition

0136111475, 9780136111474

More Books

Students also viewed these Accounting questions

Question

Are the hours flexible or set?

Answered: 1 week ago