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a) Draw a decision tree to represent the above problem. b) Determine the optimal decision that Sofyan should make. c) Compute the expected value of sample information and explain the value obtained.

a) Draw a decision tree to represent the above problem. b) Determine the optimal decision that Sofyan should make. c) Compute the expected value of sample information and explain the value obtained.

Practical Management Science
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 1 Sofyan is thinking about producing a new product for his company. If the market were favorable, he would get a return of RM100,000, but if the market were unfavorable he would lose RM40,000. He estimates that the probability of a successful market is 0.5. Sofyan also considering doing a survey to gather additional information about the market. The cost of the survey is RM4,000. Furthermore, the revised probability for a favorable market given the survey result is positive is 0.73. The probability of a favorable market given that the survey result is negative is 0.22. The probability that the survey will result in a positive market is 0.55. a) Draw a decision tree to represent the above problem. b) Determine the optimal decision that Sofyan should make. c) Compute the expected value of sample information and explain the value obtained.
Transcribed Image Text:QUESTION 1 Sofyan is thinking about producing a new product for his company. If the market were favorable, he would get a return of RM100,000, but if the market were unfavorable he would lose RM40,000. He estimates that the probability of a successful market is 0.5. Sofyan also considering doing a survey to gather additional information about the market. The cost of the survey is RM4,000. Furthermore, the revised probability for a favorable market given the survey result is positive is 0.73. The probability of a favorable market given that the survey result is negative is 0.22. The probability that the survey will result in a positive market is 0.55. a) Draw a decision tree to represent the above problem. b) Determine the optimal decision that Sofyan should make. c) Compute the expected value of sample information and explain the value obtained.
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