Essay
The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store. The demand will be weak, fair, or strong; probabilities are 0.25, 0.30, and 0.45, respectively.
If the company installs a small booth that sells only coffee, the associated payoffs are -$25,000; 25,000; and $100,000 for weak, fair, and strong demand. If the company chooses an expanded facility that offers sandwiches and breakfast foods, it must build a kitchen and rent additional space. The payoffs for an expanded facility are -$200,000, -$25,000, and $500,000.
a. Draw a decision tree for this problem.
b. What should management do to achieve the highest expected payoff?
Correct Answer:
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Small: .25(<25,000>) + .30(2...View Answer
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Correct Answer:
Verified
Small: .25(<25,000>) + .30(2...
View Answer
Unlock this answer now
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