1. Jerry Smith can open a small bicycle shop, a large shop, or no shop at all. Because there will be a five-year lease on the building that Jerry is thinking about using, he wants to make sure that he makes the correct decision. Jerry is also thinking about hiring his old marketing professor to conduct a marketing research study. If the study is conducted, the results could be either favorable or unfavorable. Develop a decision tree for Jerry.

If Jerry builds the large bicycle shop, he will earn $60,000 if the market is favorable, but he will lose $40,000 if the market is unfavorable. The small shop will return a $30,000 profit in a favorable market and a $10,000 loss in an unfavorable market.

At the present time, Jerry believes that there is a 50-50 chance that the market will be favorable. His old marketing professor will charge him $5,000 for marketing research. It is estimated that there is a .6 probability that the survey will be favorable. Furthermore, there is a .9 probability that the market will be favorable given a favorable outcome from the study. However, the marketing professor has warned Jerry that there is only a probability of .12 of a favorable market if the marketing research results are not favorable. Jerry is confused. What should he do?

Jerry, however, is unsure that .6 probability of a favorable marketing research study is correct. How sensitive is Jerrys decision to this probability value? How far can this probability value deviate from .6 without causing Jerry to change his decision?