Question: A company must decide whether to build a small, medium, or large grocery store. Marketing research indicates a 0.35 probability that demand will be low
A company must decide whether to build a small, medium, or large grocery store. Marketing research indicates a 0.35 probability that demand will be low and a 0.65 probability that demand will be high. If the company builds a small store and demand is low, the payoff will be $150,000. If demand is high the company can buy more products from a wholesaler and realize a payoff of $100,000, or expand and realize a payoff of $120,000. If the company builds a medium store and demand is low, the payoff will be $175,000; if demand is high the company can do nothing and realize a payoff of $100,000, or expand and realize a payoff of $135,000. If the company builds a large store and demand is low, the payoff will be $50,000; if demand is high the payoff will be $250,000. Construct the appropriate decision tree to analyze this problem. Determine the optimum solution.
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