After a successful newspaper business, Jimmy plans to expand by opening an icrecream shop, only if there is a good chance of making a profit. He can open a small shop, a large shop, or no shop at all. Bulding leases are five years long so he wants to make a good decision. Jimmy has done some market research and has found with a large shop he will earn $60 000 in a good market but will lose $40 000 if the market is bad. A small shop will earn him thirty thousand dollars in a good market but will lose ten thousand dollars in a bad market. Present indications are that there is a fifty-nice percent chance of a good market. Jimmy also has the option of hiring his friend for five thousand dollars to conduct a marketing research study. If the study is conducted. With the survey, there is a sixty percent probability that it will be favourable. Also, there is a ninety percent chance of a good market if the survey is favourable. However, there is also twelve percent probability of a good market with an unfavourable outcome. a. Develop a decision tree to help Jimmy decide what course of action to take. b. What is his friend's information worth?
After a successful newspaper business, Jimmy plans to expand by opening an icrecream shop, only if there is a good chance of making a profit. He can open a small shop, a large shop, or no shop at all. Bulding leases are five years long so he wants to make a good decision. Jimmy has done some market research and has found with a large shop he will earn $60 000 in a good market but will lose $40 000 if the market is bad. A small shop will earn him thirty thousand dollars in a good market but will lose ten thousand dollars in a bad market. Present indications are that there is a fifty-nice percent chance of a good market. Jimmy also has the option of hiring his friend for five thousand dollars to conduct a marketing research study. If the study is conducted. With the survey, there is a sixty percent probability that it will be favourable. Also, there is a ninety percent chance of a good market if the survey is favourable. However, there is also twelve percent probability of a good market with an unfavourable outcome. a. Develop a decision tree to help Jimmy decide what course of action to take. b. What is his friend's information worth?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.4: The Precision Tree Add-in
Problem 9P
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