2. Refer to Problem 1. Suppose after a certain amount of discussion, the contractor is able to sub- jectively assess the probabilities of low and high demand: P(low) = .3 and P(high) = .7. a. Determine the expected profit of each alternative. Which altemative is best? Why? b. Analyze the problem using a decision tree. Show the expected profit of each alternative on the tree. c. Compute the expected value of perfect information. How could the contractor use this knowledge?Problems 1. A small building contractor has recently experienced two successive years in which work op- portunities exceeded the firm's capacity. The contractor must now make a decision on capac- ity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is: SUPPLEMENTTO CHAPTER FIVE DECISION THEORY 211 a. Maximax? b. Maximin? c. Laplace? d Minimax regret? NEXT YEAR'S DEMAND Alternative Low High Do nothing $50 $60 Expand 20 Subcontract 40 70 "Profit in $ thousands