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Draw the decision tree related to the “Zeppelin” production, specifying the node numbers b) According to the node numbers specified in part a, what are the decision nodes and the event nodes? Calculate the EMV for each of the nodes  c) Opine whether Rio should take the help of Professor or not with proper justification  d) Calculate the EVSI of this “Zeppelin” production,

Draw the decision tree related to the “Zeppelin” production, specifying the node numbers b) According to the node numbers specified in part a, what are the decision nodes and the event nodes? Calculate the EMV for each of the nodes  c) Opine whether Rio should take the help of Professor or not with proper justification  d) Calculate the EVSI of this “Zeppelin” production,

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Based on the conversation above, answer the following questions.

a) Draw the decision tree related to the “Zeppelin” production, specifying the node numbers

b) According to the node numbers specified in part a, what are the decision nodes and the
event nodes? Calculate the EMV for each of the nodes 
c) Opine whether Rio should take the help of Professor or not with proper justification 
d) Calculate the EVSI of this “Zeppelin” production, 

1. "Zeppelin Zest" Rio: Last quarter of this financial year was not great. It is high time to start producing our special cars "Zeppelin." Berlin: So what are the alternatives for the "Zeppelin" production? Rio: We have three alternatives; large plant, small plant, and no plant at all. Berlin: Have you considered market scenarios regarding demand? Rio: Definitely! As per our forecasting team, there can be three scenarios, i.e., high demand, moderate demand, and low demand for the "Zeppelin" production. The probability of the high demand is 0.4 whereas there is an equal probability of moderate demand and low demand. The construction of large plant yields a profit of $200000 and $100000, for the high demand and the moderate demand, respectively. On the other hand, we will incur a loss of 120000 in case of low demand. The small plant results in the profit of $100000 and $50000, for high demand and moderate demand, respectively, whereas it faces a loss of $20000 for low demand scenario. Berlin: You should collect more information regarding market scenario before jumping onto conclusion. You can consult Professor, the famous market survey consultant. He knows things! Rio: Professor predicts positive market condition in 7 out of 10 cases. As per the historical data, when he predicts positive market condition, the probability of high demand and the moderate demand is 0.6 and 0.3, respectively. When Professor predicts negative market condition, the probability of low demand is 0.8 whereas there is an equal probability of the high demand and the moderate demand. Also, he charges a huge amount, $5000! Berlin: I don't think it's a huge amount. I feel we should take his advice. Rio: I am not very sure about it.
Transcribed Image Text:1. "Zeppelin Zest" Rio: Last quarter of this financial year was not great. It is high time to start producing our special cars "Zeppelin." Berlin: So what are the alternatives for the "Zeppelin" production? Rio: We have three alternatives; large plant, small plant, and no plant at all. Berlin: Have you considered market scenarios regarding demand? Rio: Definitely! As per our forecasting team, there can be three scenarios, i.e., high demand, moderate demand, and low demand for the "Zeppelin" production. The probability of the high demand is 0.4 whereas there is an equal probability of moderate demand and low demand. The construction of large plant yields a profit of $200000 and $100000, for the high demand and the moderate demand, respectively. On the other hand, we will incur a loss of 120000 in case of low demand. The small plant results in the profit of $100000 and $50000, for high demand and moderate demand, respectively, whereas it faces a loss of $20000 for low demand scenario. Berlin: You should collect more information regarding market scenario before jumping onto conclusion. You can consult Professor, the famous market survey consultant. He knows things! Rio: Professor predicts positive market condition in 7 out of 10 cases. As per the historical data, when he predicts positive market condition, the probability of high demand and the moderate demand is 0.6 and 0.3, respectively. When Professor predicts negative market condition, the probability of low demand is 0.8 whereas there is an equal probability of the high demand and the moderate demand. Also, he charges a huge amount, $5000! Berlin: I don't think it's a huge amount. I feel we should take his advice. Rio: I am not very sure about it.
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