A Toy Store Is Considering Expanding Its Capacity to Meet

Essay

A toy store is considering expanding its capacity to meet a growing demand for its products.The options faced by management are to build a new store,expand the existing store,or do nothing.A marketing research firm has projected a 50% probability of a high demand for the toy market,a 30% probability of a low demand,and a 20% probability of an unchanged demand.The following estimates of annual returns (in $000's)are as follows:
$$\begin{array} { l c l l } & & \text { Demand } & \\ \text { Alternative } & \text { High } & \text { Low } & \text { Unchanged } \\\hline \text { Build new store } & \$ 60 & \$ 25 & \$ 40 \\\text { Expand existing store }& \$ 45 & \$ 15 & \$ 25 \\\text { Do nothing } & \$ 10 & \$ 4 & \$ 6\end{array}$$
a.Develop a decision tree for this problem.
b.Analyze the decision tree and determine which alternative should be chosen.