### Case study - jerry smith

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##### Reference no: EM13106295

Jerry Smith is thinking about opening a bicycle shop in his hometown. Jerry loves to take his own bike on 50-mile trips with his friends, but he believes that any small business should be started only if there is a good chance of making a profit. Jerry can open a small shop, a large shop, or no shop at all. Because there will be a five-year lease on the building that Jerry is thinking about using, he wants to make sure that he makes the correct decision. Jerry is also thinking about hiring his old marketing professor to conduct a marketing research study. If the study is conducted, the results could either be favorable or unfavorable. Develop a decision tree for Jerry. also!!! Jerry Smith (Problem 3-36) has done some analysis about the profitability of the bicycle shop. If Jerry builds the large bicycle shop, he will earn \$60,000 if the market is favorable, but he will lose \$40,000 if the market is unfavorable. The small shop will return a \$30,000 profit in a favorable market and a \$10,000 loss in an unfavorable market. At the present time, he believes that there is a 50-50 chance that the market will be favorable. His old marketing professor will charge him \$5,000 for the marketing research. It is estimated that there is a 0.6 probability that the survey will be favorable. Furthermore, there is a 0.9 probability that the market will be favorable given a favorable outcome from the study. However, the marketing professor has warned Jerry that there is only a probability of 0.12 of a favorable market if the marketing research results are not favorable. Jerry is confused. (a) Should Jerry use the marketing research?

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