A building supply store is considering expanding its capacity to meet a growing demand for its...

 

Transcribed Image Text:

A building supply store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store at a site nearby, expand the old one, or do nothing. Here are the regional economic outlooks: a 20% chance that the economy will remain unchanged, a 50% probability of an upturn, and a 30% chance of an economic downturn. The following estimates of annual returns have been provided: Build new store Expand old store Do nothing Stable market (millions) 3.8 3.0 1.0 Market upturn (millions) 0.6 1.0 0 Market downturn -1.0 -0.6 -0.2 (millions) Assume the goal is to maximize expected profit. a) Set up a decision-tree for this problem b) What are the returns facing the company? c) What should the company do? A building supply store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store at a site nearby, expand the old one, or do nothing. Here are the regional economic outlooks: a 20% chance that the economy will remain unchanged, a 50% probability of an upturn, and a 30% chance of an economic downturn. The following estimates of annual returns have been provided: Build new store Expand old store Do nothing Stable market (millions) 3.8 3.0 1.0 Market upturn (millions) 0.6 1.0 0 Market downturn -1.0 -0.6 -0.2 (millions) Assume the goal is to maximize expected profit. a) Set up a decision-tree for this problem b) What are the returns facing the company? c) What should the company do?

Answer rating: 100% (QA)

a Decision Tree Setup markdown Build New Store Do Nothing Expand Old Store 02 10 30 38 b Returns fac... View the full answer