Question: Jane Woodhurst is considering whether to buy one or two machines for a certain stage of the assembly line at a new electric car startup
Jane Woodhurst is considering whether to buy one or two machines for a certain stage of the assembly line at a new electric car startup company. If one machine is purchased initially, a second one can be purchased later after observing demand. However buying the machines together is cheaper. Also the lead time to get a machine is long, so there may be lost sales if the decision to buy the nd machine is taken later after seeing high demand.
Jane estimates that demand may be low with a probability of or medium with a probability of or high with a probability of
If two machines are purchased the payoffs are $ for low demand, $ for medium demand, and $ for high demand.
If one machine is purchased, then no additional decision is required if the demand is low or medium as one machine can handle these cases However if the demand is high, Jane has options: outsource some production, buy a nd machine, do nothing live with machine
If one machine is purchased, and demand is low the payoff is $ and if demand is medium the payoff is $
If one machine is purchased and demand is high, then outsourcing gives a payoff of $ purchasing a second machine gives a payoff of $ and doing nothing gives a payoff of $
Make and solve a decision tree to hep Jane make the decision.
What is the expected payoff for Jane? Enter your answer rounded to the nearest dollar.
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