This problem requires the calculation of posterior probabilities. Dawson’s is a fruit and vegetable stand in southern New Jersey that is considering an expansion of the facility to take advantage of increased future demand. The future demand for the business will be strong or weak with a 50/50 chance of each. The following decision table summarizes Dawson’s options and the associated payoffs.

	Demand
Decision	Strong	Weak
Expand	$125,000	–$36,000
Don’t expand	$72,000	$18,000
Probability	0.50	0.50

Dawson’s has the option to hire a market research firm to conduct a survey to better ascertain the demand for their business. The cost of the survey is $5,000. If the market has strong demand for the business, the probability that the survey will predict a strong demand is 76%. If the market has a weak demand for the product, the probability that the survey will predict a strong demand is 32%.

A) Construct a decision tree to determine Dawson’s course of action.

B) What is the most that Dawson’s should pay for the survey?

Answer rating: 100% (QA)

Solution For given data Posterior Probailities are given as below Posterior Probabilities P State Fi... View the full answer