3 Question 1: In chapter 3, a decision tree was developed for John Thompson (see Figure below). First Decision Point Second Decision Point Payoffs $106.400 Favorable Market (0.78) Unfavorable Market 10.22) $190,000 -$190,000 Large Plant Favorable Market (0.78) $63,600 Small Plant $90.000 Unfavorable Market (0.22) -$30,000 Survey Favorable No Plant -$10.000 49.200 gative Survey -S87,400 Favorable Market (0.27) Unfavorable Market (0.73) 0.551 Large plant 1 Favorable Market (0.27) Conduct Market Survey $2,400 Small Plant X4 $190.000 $190,000 $90,000 -$30.000 Unfavorable Market (0.73) No Plant -$10.000 Do Not Conduct Survey - Large Plant $10,000 Favorable Market (0.50) $200,000 Unfavorable Market (0.50) $180,000 $40,000 Favorable Market (0.50) $100.000 Unfavorable Market (0:50) -$20.000 Small Plant No Plant SO The decision tree analysis recommended that John conduct the market survey. If the survey results are favourable, the recommended alterative is Large Plant. If the survey results are negative, the recommended alternative is Small Plant. After completing the analysis, John was not completely sure that he is indifferent to risk. He wants the analysis completed over again with his risk tolerance taken into consideration. After going through a number of standard gambles, John was able to assess his utility for money. Here are some of the utility assessments: U(-$190,000)=0 U(-$20,000)=0.15 U($90,000) = 0.5 U($200,000)=1.0 U(-$180,000)=0.05 U(-$10,000)=0.2 U($100,000)=0.6 U(-$30,000)=0.10 U($0)=0.3 U($190,000)=0.95 a) Draw a Utility Curve for John's preference for money. (2 points) b) If John maximizes his expected utility (instead of maximizing EMV), does his decision change? Show your calculations. (2 points)