4. "Family Man," a construction company, is considering whether to bid on a contract for a new housing complex. The cost of preparing a bid USD 200,000. “Family Man" has a 0.8 probability of winning the contract, if it submits the bid. If "Family Man" wins the bid, it has to pay USD 2000,000 to be a project partner of the project. As per the usual practice, "Family Man" will then consider consulting a market research firm "Marquess" to conduct a market survey to forecast the demand of housing complex before beginning the construction. "Marquess" charges a fee of USD 150,000. Now, the demand scenario can be either “High demand" or "Low demand." "Family Man" gets a revenue of USD 5000,000 and USD 3000,000 in case of "High demand" and "Low demand" scenario, respectively. On the other hand, instead of construction, “Family Man" has a provision of selling its project rights to another project partner construction company at the price USD 3500,000. As per the historical data, "Marquess" predicts "High demand" in 60 % of the cases. When “Marquess" predicts high demand, the probability of high demand is 0.85. When "Marquess" predicts low demand, the probability of high demand is 0.225. In the absence of market survey, "Family Man" assumes the equal probability of "High demand" and "Low demand" scenarios. Based on these data, write the answers of the following questions a) Draw the decision tree of the problem given above. Clearly specify each of the nodes of this tree diagram with the number b) Calculate the EMV of each of the nodes. Write down the node number (as per your decision tree) and respective EMV. c) What is the final decision of "Family Man" regarding bidding and Market Survey?
4. "Family Man," a construction company, is considering whether to bid on a contract for a new housing complex. The cost of preparing a bid USD 200,000. “Family Man" has a 0.8 probability of winning the contract, if it submits the bid. If "Family Man" wins the bid, it has to pay USD 2000,000 to be a project partner of the project. As per the usual practice, "Family Man" will then consider consulting a market research firm "Marquess" to conduct a market survey to forecast the demand of housing complex before beginning the construction. "Marquess" charges a fee of USD 150,000. Now, the demand scenario can be either “High demand" or "Low demand." "Family Man" gets a revenue of USD 5000,000 and USD 3000,000 in case of "High demand" and "Low demand" scenario, respectively. On the other hand, instead of construction, “Family Man" has a provision of selling its project rights to another project partner construction company at the price USD 3500,000. As per the historical data, "Marquess" predicts "High demand" in 60 % of the cases. When “Marquess" predicts high demand, the probability of high demand is 0.85. When "Marquess" predicts low demand, the probability of high demand is 0.225. In the absence of market survey, "Family Man" assumes the equal probability of "High demand" and "Low demand" scenarios. Based on these data, write the answers of the following questions a) Draw the decision tree of the problem given above. Clearly specify each of the nodes of this tree diagram with the number b) Calculate the EMV of each of the nodes. Write down the node number (as per your decision tree) and respective EMV. c) What is the final decision of "Family Man" regarding bidding and Market Survey?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
Related questions
Question
Transcribed Image Text:4. "Family Man," a construction company, is considering whether to bid on a contract for a new
housing complex. The cost of preparing a bid USD 200,000. “Family Man" has a 0.8 probability of
winning the contract, if it submits the bid. If "Family Man" wins the bid, it has to pay USD 2000,000
to be a project partner of the project. As per the usual practice, "Family Man" will then consider
consulting a market research firm "Marquess" to conduct a market survey to forecast the demand of
housing complex before beginning the construction. "Marquess" charges a fee of USD 150,000. Now,
the demand scenario can be either "High demand" or "Low demand." "Family Man" gets a revenue of
USD 5000,000 and USD 3000,000 in case of "High demand" and "Low demand" scenario,
respectively. On the other hand, instead of construction, "Family Man" has a provision of selling its
project rights to another project partner construction company at the price USD 3500,000. As per the
historical data, "Marquess" predicts "High demand" in 60 % of the cases. When "Margquess" predicts
high demand, the probability of high demand is 0.85. When "Marquess" predicts low demand, the
probability of high demand is 0.225. In the absence of market survey, "Family Man" assumes the equal
probability of "High demand" and "Low demand" scenarios. Based on these data, write the answers
of the following questions
a) Draw the decision tree of the problem given above. Clearly specify each of the nodes of this tree
diagram with the number
b) Calculate the EMV of each of the nodes. Write down the node number (as per your decision
tree) and respective EMV.
c) What is the final decision of "Family Man" regarding bidding and Market Survey?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 4 images
Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.