Using the expected monetary value criterion

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Reference no: EM131635837

For a landfill the municipality has three options to put at the bottom to separate the waste from the ground. The first option is to use clay, which will cost 1 million Dirhams, but has a chance to fail and leak 40%. The second option is to use a single bottom liner, which will cost 1.8 million Dirhams, and has a chance to fail of 20%. The third option is to use a double liner, which will cost 3 million Dirhams, and has a chance to fail 2%. The cost to clean up the groundwater if the bottom of the landfill fails is 5 million Dirhams for all options.

(a) Make the decision tree and show all your costs and probabilities. Use symbols to indicate decision nodes and chance nodes.

(b) Using the expected monetary value (EMV) criterion which is the best option?

Reference no: EM131635837

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