2.

a)PDC is optimistic about the potential for the luxury high-rise condominium complex. Suppose that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Using a decision tree find the optimal course of action.

The complex can be small, medium or large. The returns under the two demand situations are; (8, 7), (14, 5) and (20, -9) respectively.

i)Draw a decision tree to represent this information.

ii)Using the decision tree find the optimal course of action.

b)State and explain the types of decision-making environments.

The Robotic Micro computer company manufacturers micro-computers. The company is contemplating the expansion of its manufacturing facilities. The following table shows this pay-off in 1,000,000 for the company. Obtain the best decision using the EMV criterion.