After a successful newspaper business, Jimmy plans to expand by opening an icrecream shop, only ifthere is a good chance of making a profit. He can open a small shop, a large shop, or no shop at all.Bulding leases are five years long so he wants to make a good decision.Jimmy has done some market research and has found with a large shop he will earn $60 000 in agood market but will lose $40 000 if the market is bad. A small shop will earn him thirty thousanddollars in a good market but will lose ten thousand dollars in a bad market. Present indications arethat there is a fifty-nice percent chance of a good market.Jimmy also has the option of hiring his friend for five thousand dollars to conduct a marketingresearch study. If the study is conducted. With the survey, there is a sixty percent probability that itwill be favourable. Also, there is a ninety percent chance of a good market if the survey isfavourable. However, there is also twelve percent probability of a good market with anunfavourable outcome.a. Develop a decision tree to help Jimmy decide what course of action to take.b. What is his friend's information worth?

The Expected Value (EV) indicates the weighted average of conveyed alternatives; to compute this…

Answered: After a successful newspaper business,…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section9.4: The Precision Tree Add-in

Problem 9P

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