Question: Using below table calculate the expected value (EV) for each decision. In the first step you will need to create the decision tree. In decision

Using below table calculate the expected value (EV) for each decision. In the first step you will need to create the decision tree. In decision tree you will need to appropriately demonstrate nodes and arches. In the next step you will need to show EMV for each arch coming out of decision arch. Calculate the EMV for each arch and make a decision.Probability that the demand will turn out to be strong is 0.8 and for it to be weak is 0.2.

State of Nature
Decision alternatives Strong demand (S1) Weak demand (S2)
Small complex (d1) 8 7
Medium complex (d2) 14 5
Large complex (d3) 20 -9

Answer all Three questions below.

  1. Draw the decision tree with appropriate demonstration of nodes for states of nature and decision nodes. (10 Marks)

  1. Calculate payoffs for each path in the tree. Hint: You will have to calculate in total of six payoffs. (10 Marks)

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