Assignment 2: Decision Analysis 1. After graduating from college, your friends and you start an Internet auction service called Triang Com. Business has been fantastic, with 10 million customer visits-or "hits"-to the site in the past year. You have several capacity decisions to consider. One key decision involves the number of computer servers needed. You are considering putting in 10, 20, or 30 servers. Costs and capacity limits are as follows: 1442 Fixed Cost Max. Output Capacity Option 10 Servers 20 Servers 30 Servers $50.000 $90.000 $120.000 Variable Cost Per Unit of Output $0,006 $0,004 $0,003 20.000.000 40.000.000 60.000.000 In addition, marketing has developed the following demand scenarios: *44212 25 Demand Demand Probability Scenario Level 15 Million $15.000.000 35% 30 Million $30.000.000 50% 45 Million $45.000.000 15% Finally, TriangCom generated $5 million last year, based on 10 million hits. Put another way, each hit generated, on average, $0.50 in revenue. a. Calculate the break-even point for each capacity alternative. b. At what demand level will you be indifferent to having either 10 or 20 servers? c. Draw a decision tree for this problem. What are the possible outcomes your friend is facing? Calculate the expected value for each capacity alternative. Which alternative will you prefer if you want to maximize the expected value? 125