Develop a decision tree that can be used to solve Chang’s problem. You can assume in this part of the problem that she is using EMV (of her net profit) as a decision criterion. Build the tree so that she can enter any values for p1, p2, and p3 (in input cells) and automatically see her optimal EMV and optimal strategy from the tree. USING PRECISION TREE
Sarah Chang is the owner of a small electronics
company. In six months, a proposal is due for an
electronic
timing system for the next Olympic
Games. For several years, Chang’s company has been
developing a new microprocessor, a critical component
in a timing system that would be superior
to any product currently on the market. However,
progress in research and development has been
slow, and Chang is unsure whether her staff can
produce the microprocessor
in time. If they succeed
in developing the microprocessor (probability
p1), there is an excellent chance (probability p2) that
Chang’s company will win the $1 million Olympic
contract. If they do not, there is a small chance
(probability p3) that she will still be able to win the
same contract with an alternative but inferior timing
system that has already been developed.
If she continues the project, Chang must invest
$200,000 in research and development. In addition,
making a proposal (which she will decide whether
to do after seeing whether the R&D is successful)
requires developing a prototype timing system at an
additional cost. This additional cost is $50,000 if R&D
is successful (so that she can develop the new timing
system), and it is $40,000 if R&D is unsuccessful (so
that she needs to go with the older timing system).
Finally,
if Chang wins the contract, the finished product
will cost an additional $150,000 to produce.
a. Develop a decision tree that can be used to
solve Chang’s problem. You can assume in this
part of the problem that she is using EMV (of
her net profit) as a decision criterion. Build the
tree so that she can enter any values for p1, p2,
and p3 (in input cells) and automatically see her
optimal EMV and optimal strategy from the tree.
USING PRECISION TREE
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