A decision maker wants to choose between two plans (A and B) and has constructed the...

 

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A decision maker wants to choose between two plans (A and B) and has constructed the following decision tree (where S, and S₂ represent two different states of nature). Plan A is to make the product in a low-cost country of the world and Plan B is make the product domestically, however some parts/components would still be imported. There are two states of nature, S, where there are no new tariffs on products imported from the low-cost country and S₂ is where significant additional new tariffs are enforced on products manufactured in the low- cost region and then imported to US. B S₁ P(S₁) = 0.65 Sz P(S₂) = 0.35 S, P(S₁) = 0.65 S₂ P(S₂) = 0.35 $10 billion $6 billion $5 billion $7 billion a. If the decision maker wants to maximize the expected payoff, which plan should be selected and why? b. For what value of P(S₁), would the decision make be indifferent between Plan A and Plan B? Remember P(S₁) + P(S₂) = 1 A decision maker wants to choose between two plans (A and B) and has constructed the following decision tree (where S, and S₂ represent two different states of nature). Plan A is to make the product in a low-cost country of the world and Plan B is make the product domestically, however some parts/components would still be imported. There are two states of nature, S, where there are no new tariffs on products imported from the low-cost country and S₂ is where significant additional new tariffs are enforced on products manufactured in the low- cost region and then imported to US. B S₁ P(S₁) = 0.65 Sz P(S₂) = 0.35 S, P(S₁) = 0.65 S₂ P(S₂) = 0.35 $10 billion $6 billion $5 billion $7 billion a. If the decision maker wants to maximize the expected payoff, which plan should be selected and why? b. For what value of P(S₁), would the decision make be indifferent between Plan A and Plan B? Remember P(S₁) + P(S₂) = 1

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a To maximize the expected payoff the decision maker should select Plan A if the expected payoff of ... View the full answer