Even though independent gasoline stations have been having a difficult time, Ian Langella has been thinking about starting his own independent gasoline station. Ian's problem is to decide how large his station should be. The annual returns will depend on both the size of his station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, lan developed the following table: Figure 1 G (1/3) $60,000 O 08 F (1/3) $21,000 P (1/3) $23,000 Small - $12,000 Size of First Station Small Medium Large Very Large States of Nature Good Fair Poor Market Market Market $60,000 $21,000 - $12,000 $70,000 $32,000 - $18,000 $95,000 $32,500 - $42,000 $280,000 $24,000 - $150,000 G (1/3) F (1/3) Medium $28,000 $70,000 P (1/3) $32,000 G (1/3) -$18,000 F (1/3 $95,000 P (1/3 $32,500 Large For example, if Ian constructs a small station and the market is good, he will realize a profit of $60,000. This exercise contains only part e. $23,000 $28,500 e) The correct decision tree for lan, if each outcome is equally likely, is presented in v $51,333 (1/3) Very Large -- $42,000 -$280,000 F (1/3) P (1/3 $24,000 - $150,000 G = Good, F = Fair, P = Poor Figure 2 G (1/3 $60,000 F (1/3) -$21,000 P (1/3) -$12,000 $23,000 Small G (1/3) $70,000 Medium (1/3) P (1/3) $32,000 -$18,000 G (1/3) Large $95.000 Figure 2 G (1/3) $60,000 F (1/3) P (1/3) $21,000 -- $12,000 $70,000 (1/3) O OU $23,000 Small G (1/3) Medium $28,000 Large P(1/3) $32,000 G (1/3) $18,000 F (1/3 $95,000 P(1/3)$32,500 C $51,333 $28,500 Very Large $51,333 U G=Good, F=Fair, P = Poor -- $42,000 G (1/3) -$280,000 F (1/3) (1/3 $24,000 -- $150,000 Figure 3 G (1/3) $60,000 F (1/3) - $21,000 P (1/3) -- $12,000 G (1/3) $60,000 Small r Medium $70,000 (1/3, $70,000 (1/3) $32,000 G (1/3) -$18,000 F (1/3 $95,000 P(1/3,$32,500 Large $280,000 $95,000 - $42,000 Very Large $280,000 (1/3) US P (1/3, 280,000 S P (1/3 $24,000 G=Good, F = Fair, P = Poor -- $150,000