Quanti
a. 3.30 Mas Asmyra is thinking about opening a bicycle shop in his hometown. Mas loves to take his own bike on 50—mile trips with his friends, but he believes that any small business should be started only if there is a good chance of making a profit. Mas can open a small shop, a large shop, or no shop at all. The profits will depend on the size of the shop and whether the market is a favorable or unfavorable for his products. Because there will be a five-year lease on the building that Mas is thinking about using, he wants to make sure that he makes the correct decision. Mas is also thinking about hiring his old marketing professor to conduct a marketing research study. If the study is conducted, the study could be favorable or unfavorable. Develop a decision tree for Mas.
3.31 Mas Asmyra has done some analysis about the profitability of the bicycle shop. If Mas builds the large bicycle shop, he will earn $60,000 if the market is favorable, but he will lose $40,000 if the market is unfavorable. The small shop will return a $30,000 profit in a favorable market and a $10,000 loss in an unfavorable market. At the present time, he believes that there is a 50-50 chance that the market will be favorable. His old marketing professor will charge him $5,000 for the marketing research. It is estimated that there is a 0.6 probability that the survey will be favorable. Furthermore, there is a 0.9 probability that the market will be favorable given a favorable outcome from the study. However, the marketing professor has warned Mas that there is only a probability of 0.112 of a favorable market if the marketing research results are not favorable. Mas is confused.
b. Should Mas use the marketing research?
c. Mas, however, is unsure the probability of a favorable marketing research study is correct. How sensitive is Mas’s decision to this probability value? How far can this probability value deviate from 0.6 without causing Mas to change his decision?
3.31 Mas Asmyra has done some analysis about the profitability of the bicycle shop. If Mas builds the large bicycle shop, he will earn $60,000 if the market is favorable, but he will lose $40,000 if the market is unfavorable. The small shop will return a $30,000 profit in a favorable market and a $10,000 loss in an unfavorable market. At the present time, he believes that there is a 50-50 chance that the market will be favorable. His old marketing professor will charge him $5,000 for the marketing research. It is estimated that there is a 0.6 probability that the survey will be favorable. Furthermore, there is a 0.9 probability that the market will be favorable given a favorable outcome from the study. However, the marketing professor has warned Mas that there is only a probability of 0.112 of a favorable market if the marketing research results are not favorable. Mas is confused.
b. Should Mas use the marketing research?
c. Mas, however, is unsure the probability of a favorable marketing research study is correct. How sensitive is Mas’s decision to this probability value? How far can this probability value deviate from 0.6 without causing Mas to change his decision?