A circus is scheduled to appear in a city on a given date. The profits obtained are heavily dependent on the weather which can be classified as "good" or" bad". The circus owners may choose to setup operations in a large open field that is centrally located or rent a small building to stage a small version of the circus. The small building is not expected to be adversely affected by bad weather – thus will not affect the circus for it is well secure and has covered parking for the guests. The following shows the profits of the options and states of nature: Decision alternatives Set up in field Rent small building Probability States of nature Good $14,500 $5,000 P(G)=0.5 Bad -$15,000 $4,000 P(B)=0.5 The circus owners may choose to delay the decision until the day before the event is due. At this time they can obtain the one-day weather report (free) which is usually reliable. This delay will however increase their set up cost by $1000.00 or if they choose to rent, the rental cost will go up by $1500. The following is the reliability of the weather forecasters who will report that the weather will be either rainy or sunny: Forecast report Sunny Rainy Reliability of forecast Good 0.7 0.3 Bad 0.2 0.8 That is P(S/G) =0.7; P(R/G) =0.3; P(S/B) =0.2; P(R/B) =0.8 After you have computed the revised probabilities round to two decimal places a) Construct the appropriate decision tree to help the circus make the appropriate decisions. This tree must be constructed in logical order with labels and net payoffs the revised probabilities b) Fold back the decision tree It also includes to determine the best strategy for the circus; you must state

Practical Management Science
6th Edition
ISBN:9781337406659
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A circus is scheduled to appear in a city on a given date. The profits obtained are heavily dependent on
the weather which can be classified as "good" or" bad". The circus owners may choose to setup
operations in a large open field that is centrally located or rent a small building to stage a small version
of the circus. The small building is not expected to be adversely affected by bad weather – thus will not
affect the circus for it is well secure and has covered parking for the guests. The following shows the
profits of the options and states of nature:
States of nature
Decision alternatives
Set up in field
Rent small building
| Probability
Good
Bad
$14,500
$5,000
-$15,000
$4,000
P(G)=0.5
P(B)=0.5
The circus owners may choose to delay the decision until the day before the event is due. At this time
they can obtain the one-day weather report (free) which is usually reliable. This delay will however
increase their set up cost by $1000.00 or if they choose to rent, the rental cost will go up by $1500. The
following is the reliability of the weather forecasters who will report that the weather will be either
rainy or sunny:
Reliability of forecast
Forecast report
Sunny
Rainy
Good
Bad
0.7
0.2
0.3
0.8
That is P(S/G) =0.7; P(R/G) =0.3; P(S/B) =0.2; P(R/B) =0.8
After you have computed the revised probabilities round to two decimal places
a) Construct the appropriate decision tree to help the circus make the appropriate decisions. This
tree must be constructed in logical order with labels and net payoffs
the revised probabilities
b) Fold back the decision tree
It also includes
to determine the best strategy for the circus; you must state
Transcribed Image Text:A circus is scheduled to appear in a city on a given date. The profits obtained are heavily dependent on the weather which can be classified as "good" or" bad". The circus owners may choose to setup operations in a large open field that is centrally located or rent a small building to stage a small version of the circus. The small building is not expected to be adversely affected by bad weather – thus will not affect the circus for it is well secure and has covered parking for the guests. The following shows the profits of the options and states of nature: States of nature Decision alternatives Set up in field Rent small building | Probability Good Bad $14,500 $5,000 -$15,000 $4,000 P(G)=0.5 P(B)=0.5 The circus owners may choose to delay the decision until the day before the event is due. At this time they can obtain the one-day weather report (free) which is usually reliable. This delay will however increase their set up cost by $1000.00 or if they choose to rent, the rental cost will go up by $1500. The following is the reliability of the weather forecasters who will report that the weather will be either rainy or sunny: Reliability of forecast Forecast report Sunny Rainy Good Bad 0.7 0.2 0.3 0.8 That is P(S/G) =0.7; P(R/G) =0.3; P(S/B) =0.2; P(R/B) =0.8 After you have computed the revised probabilities round to two decimal places a) Construct the appropriate decision tree to help the circus make the appropriate decisions. This tree must be constructed in logical order with labels and net payoffs the revised probabilities b) Fold back the decision tree It also includes to determine the best strategy for the circus; you must state
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  1. Fold back the decision tree (5 marks) to determine the best strategy for the circus; you must state this strategy (1 mark). What is the final expected profit?

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