Tina Fey has decided to retire from show biz and is interested in starting a new business. She has been approached by an engineer who just retired from the navy. He has a business plan for building aircraft carriers for the US navy. Tina was thrilled with the idea. However, after listening to the details of his plan, she proposed to start small by introducing small sail boats for teenagers. The engineer was disappointed by her response but after evaluating all his options he decided to pursue the ides. The new boats will be built with special carbon materials that were used in construction of Boeing's Deamliner airplane. Their target market will be teenagers between the ages of 15 and 17. The boats will be of superior quality, stable, and very durable.

The CEO of Boeing (a fan of 30 Rock) has offered to provide technical help in developing the initial molds and acquiring the necessary equipment to produce these boats. Without doing any market research or pilot study, she estimates that the prob- ability of a favorable market response is 0.6.

The engineer insists to conduct a pilot study to make sure that the market for the sailboats will be adequate. Tina is talking to a research company that can create a pilot study at a cost of $10,000. The pilot study can be either successful (meaning favorable market) or not successful (meaning unfavorable market). Tina has been told that there is a 50-50 chance that the pilot study will be successful. Her main decision is whether to build a large manufacturing facility, a small manufacturing facility, or no facility at all. With a favorable market, Tina can expect to make $90,000 from the large facility or $60,000 from the smaller facility. If the market is unfavorable, however, Tina estimates that she would lose $30,000 with a large facility, and she would lose only $20,000 with the small facility. Tina estimates that the probabil- ity of a favorable market, given a successful pilot study result, 0.8. The probability of an unfavorable market, given an unsuccessful pilot study result is estimated to be 0.90.

Of course, Tina could bypass the pilot study and simply make the decision as to whether to build a large plant, small plant, or no facility at all.

Assignment Question:

Use the Decision Tree tool to conduct a formal analysis of her decision problem and make recommendations.