. If you examine the decision tree in Figure 9.12 (orany other decision trees from PrecisionTree), you willsee two numbers (in blue font) to the right of each endnode. The bottom number is the combined monetaryvalue from following the corresponding path throughthe tree. The top number is the probability that thispath will be followed, given that the best strategy isused. With this in mind, explain (1) how the positiveprobabilities following the end nodes are calculated,(2) why some of the probabilities following the endnodes are 0, and (3) why the sum of the probabilitiesfollowing the end nodes is necessarily 1. Figure 9.121 Acme multistage new product decisions with technological uncertainty2Decision Tree with3 Inputs4 Proability of failure5 Fixed development cost6 Fixed marketing cost7 Unit marginAll monetary values (except the unitmargin in cell B7) are in $1000s, and allsales volumes are in 1000s of units.Possible Techno-0.2$4,000$2,000$18logical Failure9 IMarketProbability0.45Net revenueSales volume60010 Great11 Fair12 Awful0.350.2030090$10,800$5,400$1,620131445.0%36.0%Great15$4,00.016TRUESales volume17-$2.000$1,074.01835.0%28.019S5400S600.02020.0%16.0%Awf21S1620-$4.380.022Maret product?23$1,04.024FALSE25S4.000.026TRUETechnological su27$4,0002820.0N20.0%2954,000.030Continue development?New Product Decisions313233FALSEWe have purposely avoided the use of Bayes' rule for now. It will be used in the next version of the Acmeproblem.

One kind of supervised machine learning method that is utilized for both regression and…

Answered: If you examine the decision tree in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

. If you examine the decision tree in Figure 9.12 (or
any other decision trees from PrecisionTree), you will
see two numbers (in blue font) to the right of each end
node. The bottom number is the combined monetary
value from following the corresponding path through
the tree. The top number is the probability that this
path will be followed, given that the best strategy is
used. With this in mind, explain (1) how the positive
probabilities following the end nodes are calculated,
(2) why some of the probabilities following the end
nodes are 0, and (3) why the sum of the probabilities
following the end nodes is necessarily 1.

Figure 9.12
1 Acme multistage new product decisions with technological uncertainty
2
Decision Tree with
3 Inputs
4 Proability of failure
5 Fixed development cost
6 Fixed marketing cost
7 Unit margin
All monetary values (except the unit
margin in cell B7) are in $1000s, and all
sales volumes are in 1000s of units.
Possible Techno-
0.2
$4,000
$2,000
$18
logical Failure
9 IMarket
Probability
0.45
Net revenue
Sales volume
600
10 Great
11 Fair
12 Awful
0.35
0.20
300
90
$10,800
$5,400
$1,620
13
14
45.0%
36.0%
Great
15
$4,00.0
16
TRUE
Sales volume
17
-$2.000
$1,074.0
18
35.0%
28.0
19
S5400
S600.0
20
20.0%
16.0%
Awf
21
S1620
-$4.380.0
22
Maret product?
23
$1,04.0
24
FALSE
25
S4.000.0
26
TRUE
Technological su
27
$4,000
28
20.0N
20.0%
29
54,000.0
30
Continue development?
New Product Decisions
31
32
33
FALSE
We have purposely avoided the use of Bayes' rule for now. It will be used in the next version of the Acme
problem.

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