$40 Low demand (4) #$40 Do nothing Overtime High demand (6) + $50 Build small Expand $55 #($10) Do nothing Build large Reduce prices Low demand (4) $50 High demand (6) $70

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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A manager must decide on the size of a video arcade to construct. The manager has narrowed the choices to two: large or small. Information has been collected on payoffs, and a decision tree has been constructed. Analyze the decision tree and determine which initial alternative (build small or build large) should be chosen in order to maximize expected monetary value.

$40
Low demand (4)
#$40
Do nothing
Overtime
High demand (6)
+ $50
Build small
Expand
$55
#($10)
Do nothing
Build large
Reduce prices
Low demand (4)
$50
High demand (6)
$70
Transcribed Image Text:$40 Low demand (4) #$40 Do nothing Overtime High demand (6) + $50 Build small Expand $55 #($10) Do nothing Build large Reduce prices Low demand (4) $50 High demand (6) $70
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