Question: A small business is faced with three options regarding capacity planning for the next year. Different levels of profits will be generated under three different
A small business is faced with three options regarding capacity planning for the next year. Different levels of profits will be generated under three different conditions (high customer demand, medium demand, and low demand). The probabilities associated with the three conditions are 0.3, 0.3, and 0.4 respectively. Draw the decision tree for the business. What would you suggest the small business do?
|
| Profit | ||
| Alternatives | High Demand (p=0.3) | Medium Demand (p=0.3) | Low Demand (p=0.4) |
| Build a new facility | $200,000 | $120,000 | -$35,000 |
| Increase the current capacity a bit by hiring more workers and buying more production equipment | $150,000 | $100,000 | $30,000 |
| Do nothing | $80,000 | $65,000 | $50,000 |
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