You can build either a large electronics section or a small one in yourPullman drugstore. You can also gather additional information or do notgather. If you gather additional information, the results could suggest eithera favorable or an unfavorable market, but it would cost you $2,000 togather the information. You believe that there is a 0.6 probability that theinformation will be favorable. If the market is favorable, you will earn$20,000 with a large section or $10,000 with a small one. With anunfavorable electronics market, however, you could lose $25,000 with alarge section or $15,000 with a small section. Without gathering additionalinformation, you estimate that the probability of a favorable market is 0.5. Afavorable report from the study would increase the probability of afavorable market to 0.8. Furthermore, an unfavorable report from theadditional information would decrease the probability of a favorable marketto 0.3. In this situation, you can find the best decision by creating a decisiontree of this problem and analyzing the tree.What would be the best decision for you? What would be the expectedvalue of your best decision?Gather additional information. If the market is favorable, build a large section. Ifthe market is unfavorable, build a small section. Expected value is $1,600.Gather additional information. If the market is favorable, build a small section. Ifthe market is unfavorable, build a large section. Expected value is $1,600.Gather additional information. If the market is favorable, build a small section. Ifthe market is unfavorable, build a large section. Expected value is $7,300.Without gathering additional information build a large section with the expectedvalue of $7,300. The Collector's Choice Inc. (CCI), a luxury car import company, has an oldwarehouse at the Port of Miami, Florida, where it temporarily storesexpensive sports cars and automotive parts that arrive from Europe. Thissummer, CCI has noticed that the termite infestation in the warehouse hasescalated to a point where tenting cannot be postponed anymore. (Tentingis the process of wrapping a building inside a huge tent that is subsequentlyfilled with a poisonous gas capable of killing most forms of life inside,including insects, plants, pets, and human beings.) CCI's pest controlcompany's contract specifies a to-do list of pre-tenting tasks, which include:• Turning off all air-conditioning units and opening all windows of thewarehouse• Turning off all internal and external lights, including those operating on atimer• Pruning all outdoor vegetation at least 18" away from the -warehouse• Soaking the soil around the warehouse on the first day of tentingThe requirement of opening all windows is particularly worrisome to CCIbecause it means turning off the alarm system, leaving the warehousevulnerable to burglary for 48 hours-the required amount of time for thepoisonous gas to do its job. Therefore, Alex Ferrari, the warehouse manager,is thinking about hiring a security company to monitor the facility duringthat period. CCI's property insurance deductible is $25,000, and Alex isassuming that if thieves are willing to enter a building full of poisonous gasto steal something, they would certainly take more than $25,000 worth ofparts-or even an entire car!After making a few phone calls, Alex gets in touch with ProGuard, atrustworthy local security company that charges $150 per hour to have asecurity guard stationed outside their warehouse. The city of Miami policerecords indicate that about 20% of businesses that left their facilitiesunattended during tenting reported stolen property in the past 3 years.Although Alex thinks ProGuard's prices are reasonable, and having a guardoutside the warehouse would certainly help, he is still not sure whether it isworth spending the extra money. After all, ProGuard's contract does notguarantee the protection it provides is infallible. In fact, an analysis of thecompany's records indicates that 5% of their clients were burglarized overthe past 3 years.

Question

You can build either a large electronics section or a small one in yourPullman drugstore. You can also gather additional information or do notgather. If you gather additional information, the results could suggest eithera favorable or an unfavorable market, but it would cost you $2,000 togather the information. You believe that there is a 0.6 probability that theinformation will be favorable. If the market is favorable, you will earn$20,000 with a large section or $10,000 with a small one. With anunfavorable electronics market, however, you could lose $25,000 with alarge section or $15,000 with a small section. Without gathering additionalinformation, you estimate that the probability of a favorable market is 0.5. Afavorable report from the study would increase the probability of afavorable market to 0.8. Furthermore, an unfavorable report from theadditional information would decrease the probability of a favorable marketto 0.3. In this situation, you can find the best decision by creating a decisiontree of this problem and analyzing the tree.What would be the best decision for you? What would be the expectedvalue of your best decision?Gather additional information. If the market is favorable, build a large section. Ifthe market is unfavorable, build a small section. Expected value is $1,600.Gather additional information. If the market is favorable, build a small section. Ifthe market is unfavorable, build a large section. Expected value is $1,600.Gather additional information. If the market is favorable, build a small section. Ifthe market is unfavorable, build a large section. Expected value is $7,300.Without gathering additional information build a large section with the expectedvalue of $7,300. The Collector's Choice Inc. (CCI), a luxury car import company, has an oldwarehouse at the Port of Miami, Florida, where it temporarily storesexpensive sports cars and automotive parts that arrive from Europe. Thissummer, CCI has noticed that the termite infestation in the warehouse hasescalated to a point where tenting cannot be postponed anymore. (Tentingis the process of wrapping a building inside a huge tent that is subsequentlyfilled with a poisonous gas capable of killing most forms of life inside,including insects, plants, pets, and human beings.) CCI's pest controlcompany's contract specifies a to-do list of pre-tenting tasks, which include:• Turning off all air-conditioning units and opening all windows of thewarehouse• Turning off all internal and external lights, including those operating on atimer• Pruning all outdoor vegetation at least 18&#34; away from the -warehouse• Soaking the soil around the warehouse on the first day of tentingThe requirement of opening all windows is particularly worrisome to CCIbecause it means turning off the alarm system, leaving the warehousevulnerable to burglary for 48 hours-the required amount of time for thepoisonous gas to do its job. Therefore, Alex Ferrari, the warehouse manager,is thinking about hiring a security company to monitor the facility duringthat period. CCI's property insurance deductible is $25,000, and Alex isassuming that if thieves are willing to enter a building full of poisonous gasto steal something, they would certainly take more than $25,000 worth ofparts-or even an entire car!After making a few phone calls, Alex gets in touch with ProGuard, atrustworthy local security company that charges $150 per hour to have asecurity guard stationed outside their warehouse. The city of Miami policerecords indicate that about 20% of businesses that left their facilitiesunattended during tenting reported stolen property in the past 3 years.Although Alex thinks ProGuard's prices are reasonable, and having a guardoutside the warehouse would certainly help, he is still not sure whether it isworth spending the extra money. After all, ProGuard's contract does notguarantee the protection it provides is infallible. In fact, an analysis of thecompany's records indicates that 5% of their clients were burglarized overthe past 3 years.

Accepted Answer

Answered: Image /qna-images/answer/5d595d9e-e58b-4e25-bb07-b0b032ec1131.jpg