Draw the decision tree and advise Daegu

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Economics
Daegu considers producing electric razors for men. If the market demand is high, he
would get a return of $100,000, but if there were a low demand for this type of razor, he
would lose $60,000. Daegu also considers the possibility of ordering a market survey to
gather additional information about the market demand. The survey includes a
sophisticated questionnaire administered to a test market and costs $5,000. Daegu
believes that there is a 62:38 chance that the market information will be favorable (i.e.,
predicting a high market demand) and unfavorable (i.e., predicting a low market
demand). Furthermore, the probabilities of a favorable survey given a high market
demand and an unfavorable survey given a low demand are both 0.8. Daegu is not sure
if the value of the survey is worth the cost
Draw the decision tree and advise Daegu
Transcribed Image Text:Economics Daegu considers producing electric razors for men. If the market demand is high, he would get a return of $100,000, but if there were a low demand for this type of razor, he would lose $60,000. Daegu also considers the possibility of ordering a market survey to gather additional information about the market demand. The survey includes a sophisticated questionnaire administered to a test market and costs $5,000. Daegu believes that there is a 62:38 chance that the market information will be favorable (i.e., predicting a high market demand) and unfavorable (i.e., predicting a low market demand). Furthermore, the probabilities of a favorable survey given a high market demand and an unfavorable survey given a low demand are both 0.8. Daegu is not sure if the value of the survey is worth the cost Draw the decision tree and advise Daegu
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