our manager is quite concerned about the recent deterioration of a section of the roof on a building that houses your firm's computer operations. According to your assistant there are three options which merit consideration: A, B, and C. Moreover, there are three possible future conditions that must be included in the analysis: I, which has a probability of occurrence of .5; II, which has a probability of .3; and III, which has a probability of .2. If condition I materializes, A will cost $12,000, B will cost $20,000, and C will cost $16,000. If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C. If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C. (A) Draw a decision tree for this problem (B) Using expected monetary value, which alternative should be chosen? Explain your Answer
Your manager is quite concerned about the recent deterioration of a section of the roof on a building that houses your firm's computer operations. According to your assistant there are three options which merit consideration: A, B, and C. Moreover, there are three possible future conditions that must be included in the analysis:
I, which has a probability of occurrence of .5;
II, which has a probability of .3; and
III, which has a probability of .2.
If condition I materializes, A will cost $12,000, B will cost $20,000, and C will cost $16,000.
If condition II materializes, the costs will be $15,000 for A, $18,000 for B, and $14,000 for C.
If condition III materializes, the costs will be $10,000 for A, $15,000 for B, and $19,000 for C.
(A) Draw a decision tree for this problem
(B) Using expected monetary value, which alternative should be chosen? Explain your Answer.
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