Question: OPERATIONS RESEARCH QUESTION 1 MJ Logistics has decided to build a new warehouse to support its supply chain activities. They have the option of building

OPERATIONS RESEARCH

QUESTION 1

MJ Logistics has decided to build a new warehouse to support its supply chain activities. They have the option of building either a large warehouse or a small one.

Construction costs for the large facility are $ 8 million versus $ 5 million for the small facility. The profit (excluding construction cost) depends on the volume of work the company expects to contract for in the future. This is summarized in the table below (in millions of dollars):

	High Volume	Low Volume
Large Warehouse	$ 35	$ 20
Small Warehouse	$ 15	$ 9

The company believes that there is a 60% chance that the volume of demand will be high.

a) Construct a decision tree to identify the best choice. (30 marks)

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