Question: A person with expensive equipment needs to replace its motor. He finds a used motor at a second hand outfit for $100, but finds that
A person with expensive equipment needs to replace its motor. He finds a used motor at a second hand outfit for $100, but finds that the testing is not reliable. Seventy percent of the time it tests good motors as good and 40 percent of the time, it tests bad motors as good. From past experience, a used motor is good 20 percent of the time. The only other alternatives are to either order a brand new motor for $300, which is available only after 6 months at a loss of $100, or buy one from ready stock for $450. a. Sketch a decision tree showing all options. b. What is the best strategy?
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