Question: Kumar Electronics is planning to introduce a new line of electronic products it plans to market and sell in India. Sanjay Kumar, the owner, is

Kumar Electronics is planning to introduce a new line of electronic products it plans to market and sell in India. Sanjay Kumar, the owner, is trying to decide whether to build a small or large manufacturing facility in his hometown of Jodhpur. High demand for the new line of products and a large facility will generate a net profit of $600,000. Building a small facility and then experiencing high demand will provide a net profit of $250,000. Yet, if a large facility is built and the demand turns out to be low, Sanjay will lose $200,000. A small facility and low demand will result in a net profit of $100,000. The probability of the demand being low is 0.4, and the probability of it being high is 0.6:

1. Analyze the problem using a decision tree.

2. Perform a sensitivity analysis for the P (High Demand) to help Sanjay make a decision.

3. What would be the EVPI if Sanjay can hire a market research analyst to get additional information about the demand for his company’s electronic products?

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