### Values in decision tree

##### Reference no: EM136575

Q. "3-42 Jim Vendors is viewing about manufacturing a new type of electric razor for men. If advertise were favorable, he would get a return of \$100,000, but if market for this new form of razor were unfavorable, he would lose \$60,000. While Ron Bush is a good friend of Jim Vendors, Jim is considering the possibility of using Bush Marketing Research to gather additional in sequence about the market for razor. Ron has suggested that Jim moreover use a survey or a pilot study to test market. The survey would be a sophisticated questionnaire administered to a test market. It will cost \$5,000. Another substitute is to run a pilot study. This could involve producing a limited number of new razors and trying to sell them in two cities that are typical of American cities. Pilot study is additional accurate but is also more luxurious, it will cost \$20,000. Ron Bush has recommended that it would a good idea for Jim to conduct either the survey or the pilot before Jim makes the decision concerning either to produce the new razor. But Jim is not sure if the value of the survey or the pilot is worth the cost.

Jim approximates that probability of a successful market not including performance a survey or pilot study is 0.5. Furthermore, likelihood of a favorable survey result given a favorable market for razors is 0.7, and probability of a favorable survey result given an unsuccessful market for razors is 0.2. In addition, the likelihood of an unfavorable pilot study given an unfavorable market is 0.9, and the likelihood of an unsuccessful pilot study result given a favorable market for razors is 0.2.

a. Draw for this problem a decision tree with no probability values.

b. Calculate the revised probabilities needed to complete decision, in addition to place these values in decision tree.

c. Elucidate is the best decision for Jim? Use EMV as the decision criterion

3-28 Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gas station. Susan's problem is to decide how large her station should be. The annual returns will depend on both the size of the station and a number of marketing factors related to oil industry and demand for gasoline. After careful analysis, Susan developed the following table:

Size of Gasoline Station Good Market (\$) Fair Market (\$) Poor Market (\$)
Small \$50,000 \$20,000 -\$10,000
Medium \$80,000 \$30,000 -\$20,000
Large \$100,000 \$30,000 -\$40,000
Very Large \$300,000 \$25,000 -\$160,000

a. Develop a decision table for this decision.
b. What is the Maxi max decision?
c. What is the Maxi min decision?
d. What is the equally likely decision?
e. What is the criterion of realism decision? Use a = 0.8.
f. Develop an Opportunity Loss Table
g. What is the Mini max Regret Decision?