Explain use the marketing research, Operation Management

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CASE STUDY 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 favourable or unfavourable. 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 favourable, but he will lose $40,000 if the market is unfavourable. The small shop will return a $30,000 profit in a favourable market and a $10,000 loss in an unfavourable market. At the present time, he believes that there is a 50-50 chance that the market will be favourable. 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 favourable. Furthermore, there is a 0.9 probability that the market will be favourable given a favourable outcome from the study. However, the marketing professor has warned Jerry that there is only a probability of 0.12 of a favourable market if the marketing research results are not favourable. Jerry is confused. (a) Should Jerry use the marketing research?


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