A Company Is Planning a Plant Expansion

Essay

A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is a 72% chance that demand for their products will be high and a 28% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 76% chance that the customers will like the products and a 24% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is an 87% chance that demand will be high for the products. If the survey is unfavorable there is only a 25% chance that the demand will be high. Draw the decision tree for the problem when the survey is performed before the plant size decision is made.