A decision maker wants to choose between two plans (A and B) and has constructed the following decision tree (where S and S represent two different states of nature).

• Plan A is to make the product in a low-cost country of the world and Plan B is make the product domestically, however some parts/components would still be imported.
• There are two states of nature, S where there are no new tariffs on products imported from the low-cost country and S is where significant additional new tariffs are enforced on products manufactured in the low-cost region and then imported to US.

1. If the decision maker wants to maximize the expected return, which plan should be selected and why?

2. For what value of P(S), would the decision make be indifferent between Plan A and Plan B?

$9 billion S, P/S) = 0.6 S2 P(S2) = 0.4 $1 billion $3 billion S, B P/S) = 0.6 S2 P(S2) = 0.4 $5 billion