Capacity Management Decision Tree Practice Problems next page A retailer must decide whether to build a small or a large facility at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6 respectively. If a small facility is built and demand proves to be high, the manager may choose not to expand (payoff-$223,000) or to expand (payoff- $270,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is $200,000. If a large facility is built and demand proves to be low, the choice is to do nothing (payoff-$40.000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7 respectively. If response is modest, the payoff is estimated to be only $20,000; the payoff grows to $50,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is $400,000. Which alternative has the highest expected payoff. alternatives Usmall/iarge