Question 2. A risk neutral decision maker is trying to decide whether to expand its product line by manufacturing and marketing a new product, which is backyard storage sheds.. The courses of action that may be chosen are: (1) building a large plant to manufacture storage sheds, (2) building a small plant to manufacture storage sheds, (3) building no plant at all. Resulting payoffs of these actions under different states of nature are as follows: (1) building a large plant to manufacture storage sheds: 200 000 TL if the market is favorable, -180 000 TL if the market is unfavorable (2) building a small plant to manufacture storage sheds: 100 000 TL if the market is favorable, -20 000 TL if the market is unfavorable (3) building no plant at all: 0 TL Probability of favorable market is same as probability of unfavorable market. (i.e., each state of nature has a 0.50 probability.)

a) Represent the decision makers problem by using a decision tree. b) Determinethebeststrategythatmaximizestheexpectedpayoff.Showyourwork.(Show

your calculations for the expected value of uncertain events, show the eliminated decisions etc.)

WE SHOULD DO DECISION TREE ANALYSIS