Use the following information to answer multiple-choice Questions 21 to 30.A fibre glass company is considering the possibility of introducing a new product.Because of the expense involved in developing the initial moulds and acquiring thenecessary equipment to produce fibreglass, it has decided to conduct a pilot study tomake sure that the market will be adequate. They estimate that the pilot study will cost£12,000. Furthermore, the pilot study can be either successful or unsuccessful. The basicdecisions are to build a large manufacturing facility, a small manufacturing facility, orno facility at all. With a favourable market, the company can expect to make £100,000from the large facility or £60,000 from the smaller facility. If the market is unfavourable,however, they estimate that they would lose £40,000 with a large facility, while theywould lose only £30,000 with the small facility. The company estimates that theprobability of a favourable market given a successful pilot study is 0.7. The probabilityof an unfavourable market given an unsuccessful pilot study result is estimated to be 0.8.They feel that there is a 50-50 chance that the pilot study will be successful. Of course,the company could decide not to commission the pilot study and therefore make thedecision as to whether to build a large facility, small facility or no facility at all. Withoutdoing any testing in a pilot study they estimate that the probability of a successful marketis 0.7.Draw a decision tree for the above company and write down the REVENUES andCOSTS at the end of branches.

There are pilot study cost is £12,000. Here, with favorable market, the company can expect to make…

Answered: Draw a decision tree for the above…

Business

Operations Management

Draw a decision tree for the above company and write down the REVENUES and COSTS at the end of branches.

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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