Alpha is a dry cleaning company that is considering opening a new shop in the Lions...

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Alpha is a dry cleaning company that is considering opening a new shop in the Lions Shopping Mall. There are two possible spaces under consideration. Space 1 is relatively small, while Space 2 is large. If Alpha opens at Space 1 and demand is high, the company will generate a profit of $50,000. If demand is low, Alpha will lose $10,000. If Alpha opens at Space 2 and demand is high, it will generate a profit of $80,000, but will lose $30,000 if demand is low. Alpha could also decide against opening a shop in Lions Shopping Mall. Alpha's management believes that there is a 50% chance that demand will be high. A market research study will cost $5,000. The probability of a high demand given a favourable study is 0.8. The probability of a high demand given an unfavourable study is 0.1. There is a 60% chance that the study will be favourable. Develop a decision tree for this scenario and recommend an appropriate decision option for Alpha. SHOW ALL OF YOUR WORKING. (15 marks) Alpha is a dry cleaning company that is considering opening a new shop in the Lions Shopping Mall. There are two possible spaces under consideration. Space 1 is relatively small, while Space 2 is large. If Alpha opens at Space 1 and demand is high, the company will generate a profit of $50,000. If demand is low, Alpha will lose $10,000. If Alpha opens at Space 2 and demand is high, it will generate a profit of $80,000, but will lose $30,000 if demand is low. Alpha could also decide against opening a shop in Lions Shopping Mall. Alpha's management believes that there is a 50% chance that demand will be high. A market research study will cost $5,000. The probability of a high demand given a favourable study is 0.8. The probability of a high demand given an unfavourable study is 0.1. There is a 60% chance that the study will be favourable. Develop a decision tree for this scenario and recommend an appropriate decision option for Alpha. SHOW ALL OF YOUR WORKING. (15 marks)

Answer rating: 100% (QA)

To solve this problem we can create a decision tree to visualize the different decision options and their outcomes First we need to identify the decis... View the full answer