Consider a variation of the PDC decision tree shown in Figure 13.7. The company must first decide whether to undertake the market research study. If the market research study is conducted, the outcome will either be favourable (F) or unfavourable (U). Assume there are only two decision alternatives d1 and d2 and two states of nature s1 and s2. The payoff table showing profit is as follows: State of Nature Decision Alternative s1 s2 d1 100 300 d2 400 200

a. Show the decision tree.

b. Using the following probabilities, what is the optimal decision strategy? PðFÞ ¼ 0:56 Pðs1jFÞ ¼ 0:57 Pðs1jUÞ ¼ 0:18 Pðs1Þ ¼ 0:40 PðFÞ ¼ 0:44 Pðs2jFÞ ¼ 0:43 Pðs2jUÞ ¼ 0:82 Pðs2Þ ¼ 0:60