Oc.250 Q250 Qlow (0.6)low (0.6)expandexpand22302230smallsmallThigh (0.4)high (0.4)don't expand183don't expand183modest (0.4)40modest (0.4)4011sizabsizable220(0.6)advertiseadvertise220(0.6)largelow (0.6)largelow (0.6)4545don't advertisedon't advertisehigh (0.4)high (0.4)300300 Cheryl Druehl Retailers, Inc., must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high, with probabilities 0.6 and 0.4, respectively. If Cheryl builds a small facility anddemand proves to be high, she then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $230,000. If a small facility is built and demand proves tobe high, but Cheryl then decides not to expand the facility, the payoff is $183,000.If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $250,000. If a large facility is built and demand proves to be low, Cheryl then has the option of stimulating demand through localadvertising. If she does not exercise this option, then the payoff is $45,000. If she does exercise the advertising option, then the response to advertising will either be modest or sizable, with probabilities of 0.4 and 0.6, respectively. If the responseis modest, the payoff is $40,000. If it is sizable, the payoff is $220,000. Finally, if a large facility is built and demand proves to be high, then no advertising is needed and the payoff is $300,000.a) What should Cheryl do to maximize her expected payoff?Choose the correct decision tree below. Note that all payoffs are in $1,000s.O A.В.250250 Qlow (0.4)low (0.6)expandexpand22302230smallhigh (0.6)largehigh (0.4)don't expand183don't expand183modest (0.6)40modest (0.4)401sizable220(0.4)sizableadvertiseadvertise220(0.6)largelow (0.6)smalllow (0.6)453don't advertise45don't advertisehigh (0.4)high (0.4)300300

Introduction Here we have two type of firms: small and large Production of small firm Production of…

Answered: C. -250 low (0.6) еxpand 2 - 230 small…

C. -250 low (0.6) еxpand 2 - 230 small high (0.45 don't expand 183 modest (0.4) 1 40 advertise sizable 220 (0.6) large „low (0.6) 3 don't advertise 45 high (0.4) 300

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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