A development corporation purchased land that will be the site of a new luxury condominium complex. Management is considering a six month market research study designed to learn more about potential market acceptance of the condominium project. Management anticipates that, if conducted, the market research study will provide one of the following two results. Favorable report (F): A significant number of the individuals contacted express interest in purchasing a condominium. Unfavorable report (U): Very few of the individuals contacted express interest in purchasing a condominium. After deciding whether to conduct the market research study, they have the following two decision alternatives. d1 = a small complex with 30 condominiums d2 = a medium complex with 60 condominiums Following this, a chance event concerning the demand for the condominiums has two states of nature. s1 = strong demand for the condominiums s2 = weak demand for the condominiums The payoff table showing profit is as follows. (b) Use the following probabilities. P(F) = 0.59 P(U) = 0.41 P(s1|F) = 0.58 P(s2|F) = 0.42 P(s1|U) = 0.17 P(s2|U) = 0.83 P(s1) = 0.41 P(s2) = 0.59 What is the optimal decision strategy? Conduct the market research. If it is favorable, choose decision d1. If it is unfavorable, choose decision d2.Conduct the market research. If it is favorable, choose decision d2. If it is unfavorable, choose decision d1. Don't conduct the market research. Choose decision d1.Don't conduct the market research. Choose decision d2.

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...

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Question

A development corporation purchased land that will be the site of a new luxury condominium complex. Management is considering a six month market research study designed to learn more about potential market acceptance of the condominium project. Management anticipates that, if conducted, the market research study will provide one of the following two results.

Favorable report (F): A significant number of the individuals contacted express interest in purchasing a condominium.
Unfavorable report (U): Very few of the individuals contacted express interest in purchasing a condominium.

After deciding whether to conduct the market research study, they have the following two decision alternatives.

d₁	=	a small complex with 30 condominiums
d₂	=	a medium complex with 60 condominiums

Following this, a chance event concerning the demand for the condominiums has two states of nature.

s₁	=	strong demand for the condominiums
s₂	=	weak demand for the condominiums

The payoff table showing profit is as follows.

(b)

Use the following probabilities.

P(F) = 0.59
P(U) = 0.41

P(s₁|F) = 0.58
P(s₂|F) = 0.42

P(s₁|U) = 0.17
P(s₂|U) = 0.83

P(s₁) = 0.41
P(s₂) = 0.59

What is the optimal decision strategy?

Conduct the market research. If it is favorable, choose decision d₁. If it is unfavorable, choose decision d₂.Conduct the market research. If it is favorable, choose decision d₂. If it is unfavorable, choose decision d₁. Don't conduct the market research. Choose decision d₁.Don't conduct the market research. Choose decision d₂.