ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
A development corporation purchased land that will be the site of a new luxury condominium complex. Management is considering a six month
1. Favorable report (F): A significant number of the individuals contacted express interest in purchasing a condominium.
2. Unfavorable report (U): Very few of the individuals contacted express interest in purchasing a condo- minium.
After deciding whether to conduct the market research study, they have the following two decision alternatives.
d1 = a small complex with 30 condominiums
d2 = a medium complex with 60 condominiums
Following this, a chance event concerning the
s2 = weak demand for the condominiums
The payoffs, probabilities, and decision tree associated with this problem are given on the next page.
Note that payoffs are given in thousands of dollars.
Transcribed Image Text:With
Research 2
1
F 0.59
No
Research
U 0.41
3
d₁
d₂
4
5
d₂
d₁
d₂
6
7
8
9
10
11
S₁0.56
$₂ 0.44
S₁0.56
$₂0.44
$₁0.19
$₂ 0.81
S₁ 0.19
$₂ 0.81
S₁ 0.41
$₂ 0.59
S₁ 0.41
$₂ 0.59
200
600
800
400
200
600
800
400
200
600
800
400
Transcribed Image Text:3. Suppose now that the market research study has a cost. What would be the maximum amount that
you would be willing to pay for market research?
(a)
(b)
$19,000
$147,000
(c) $0
(d)
$1,000
(e) $60,000
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