The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product and it is successful, the company will earn a $50,000 profit; if it is unsuccessful, the company will lose$35,000. In the past, similar products have been successful 60% of the time. At a cost of $5,000,3 the effectiveness of the new fertilizer can be tested. If the test result is favorable and Nitro markets the product, there is an 80% chance that the fertilizer will be successful. If the test result is unfavorable and Nitro markets the product, there is only a 30% chance that the fertilizer will be successful. There is a 60% chance of a favorable test result and a 40% chance of an unfavorable test result. Use a decision tree to determine how to maximize this company’s expected profit. (Draw the decision tree for this problem; determine Nitro’s optimal strategy, and the expected profit.)
QUESTION 4
The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product and it is successful, the company will earn a $50,000 profit; if it is unsuccessful, the company will lose$35,000. In the past, similar products have been successful 60% of the time. At a cost of $5,000,3
the effectiveness of the new fertilizer can be tested. If the test result is favorable and Nitro markets the product, there is an 80% chance that the fertilizer will be successful. If the test result is unfavorable and Nitro markets the product, there is only a 30% chance that the fertilizer will be successful. There is a 60% chance of a favorable test result and a 40% chance of an unfavorable test result. Use a decision tree to determine how to maximize this company’s expected profit. (Draw the decision tree for this problem; determine Nitro’s optimal strategy, and the expected profit.)
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