MJ Logistics has decided to build a new warehouse to support its supply chain activities. They have the option of building either a large warehouse or a small one. Construction costs for the large facility are $ 8 million versus $ 3 million for the small facility. The profit ( excluding construction cost) depends on the volume of work the company expects to contract for in the future. This is summarized in the following table ( in millions of dollars):

The company believes that there is a 60% chance that the volume of demand will be high.
a. Construct a decision tree to identify the best choice.

b. Suppose that the company engages an economic expert to provide an opinion about the volume of work based on a forecast of economic conditions. Historically, the expert’s upside predictions has been 75% accurate, whereas the downside predictions have been 90% accurate. In contrast to the company’s assessment, the expert believes that the chance for high demand is 70%. Determine the best strategy if their predictions suggest that the economy will improve or will deteriorate. Given the information, what is the probability that the volume will be high?

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Large warehouse Small warehouse High Volume $35 $25 Low Volume $20 $15