MegaJoy Corp. is planning to open a new video arcade. It has narrowed the choices to a large or small arcade.(All costs and revenues in this problem are expressed in thousands of dollars.) The cost of a large arcade is $400, and the cost of a small arcade is $300．It has forecast that the demand will be low with probability 0.3 and high with probability 0.７．If MegaJoy builds a small arcade and the demand is high, then it expects revenues of $540. If MegaJoy builds a large arcade and the demand is low, then it has two alternatives: do nothing and earn revenue of $380, or reduce prices and earn revenues of $450. a. Draw a decision tree for this problem. b. Which choice yields the maximum expected money value?( Show calculation) c. A consulting firm has offered to perform reseach and forecast the demand fo MegaJoy. The firm will charge $8(thouthand) for its services, and it claims that the information will be 100% accurate. Should MegaJoy pay for the consulting services? Justify your response with numbers. d. There is some question about the probability of a high demand (currently estimated to be 0.7). What value for this probability would cause MegaJoy to be indifferent between large and small arcades?
MegaJoy Corp. is planning to open a new video arcade. It has narrowed the choices to a large or small arcade.(All costs and revenues in this problem are expressed in thousands of dollars.) The cost of a large arcade is $400, and the cost of a small arcade is $300．It has
a. Draw a decision tree for this problem.
b. Which choice yields the maximum expected money value?( Show calculation)
c. A consulting firm has offered to perform reseach and forecast the demand fo MegaJoy. The firm will charge $8(thouthand) for its services, and it claims that the information will be 100% accurate. Should MegaJoy pay for the consulting services? Justify your response with numbers.
d. There is some question about the probability of a high demand (currently estimated to be 0.7). What value for this probability would cause MegaJoy to be indifferent between large and small arcades?
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