36. A manager has developed a table that shows payoffs for a future store. The payoffs depend on the size of the store and the strength of demand (in thousands): Store size Demand High 2.500 4,000 Low Small Large 1,500 500 The manager estimates that the probability of low demand is 0.50, and the probability of high demand is 0.50. The manager could request that a local research firm conduct a survey (cost: 100,000) that could better indicate whether demand will be low or high. In discussion with the research firm, the manager has learned the following about the reliability of surveys conducted
36. A manager has developed a table that shows payoffs for a future store. The payoffs depend on the size of the store and the strength of demand (in thousands): Store size Demand High 2.500 4,000 Low Small Large 1,500 500 The manager estimates that the probability of low demand is 0.50, and the probability of high demand is 0.50. The manager could request that a local research firm conduct a survey (cost: 100,000) that could better indicate whether demand will be low or high. In discussion with the research firm, the manager has learned the following about the reliability of surveys conducted
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
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Transcribed Image Text:36. A manager has developed a table that shows payoffs for a future store. The payoffs depend on
the size of the store and the strength of demand (in thousands):
Store size
Demand
Low
High
Small
Large
1,500
2,500
500
4,000
The manager estimates that the probability of low demand is 0.50, and the probability of high
demand is 0.50. The manager could request that a local research firm conduct a survey (cost:
100,000) that could better indicate whether demand will be low or high. In discussion with the
research firm, the manager has learned the following about the reliability of surveys conducted
by the firm:
Survey showed
Actual results was
High
0.30
Low
Low
0.90
High
0.10
0.70
a. If the manager should decide to use the survey, what would the revised probabilities be for
demand, and what probabilities should be used for survey results?
b. Construct a tree diagram for this problem
c. Would you recommend that the manager use the survey ?
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