A businessman must decide whether to open a new mini grocery branch or simply extend the number of hours of its operation on its existing branch with a payoff of P 150,000. According to his friend, demand at the new location can either be low or high, which the probabilities are estimated to be 35% and 65%, respectively. If a new branch is opened and demand proves to be low, there is no need to operate on a 24-hr basis but instead, they will stick to 12-hrs operation with a payoff of P 100,000 or enhance marketing strategy through advertising. Projected response to advertising may either be favorable or not favorable, with estimated probabilities of 40% and 60%, respectively. If demand is favorable, the payoff grows to P 310,000 and if response is unfavorable, the payoff is P 120,000. The cost of advertising is P45,000.Required: a. Draw a decision treeDetermine the expected value for each decision and event nodes.Which alternative is the best for the businessman?

Name: A businessman must decide whether to open a new mini grocery branch or
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Description: A businessman must decide whether to open a new mini grocery branch or simply extend the number of hours of its operation on its existing branch with a payoff of P 150,000. According to his friend, demand at the new location can either be low or high

The payoff of existing branch is 150,000. The probability that the demand will be low at the new…

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Holt Mcdougal Larson Pre-algebra: Student Edition 2012

1st Edition

ISBN:9780547587776

Author:HOLT MCDOUGAL

Publisher:HOLT MCDOUGAL

Chapter11: Data Analysis And Probability

Section11.8: Probabilities Of Disjoint And Overlapping Events

Problem 2C

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A businessman must decide whether to open a new mini grocery branch or simply extend the number of hours of its operation on its existing branch with a payoff of P 150,000. According to his friend, demand at the new location can either be low or high, which the probabilities are estimated to be 35% and 65%, respectively. If a new branch is opened and demand proves to be low, there is no need to operate on a 24-hr basis but instead, they will stick to 12-hrs operation with a payoff of P 100,000 or enhance marketing strategy through advertising. Projected response to advertising may either be favorable or not favorable, with estimated probabilities of 40% and 60%, respectively. If demand is favorable, the payoff grows to P 310,000 and if response is unfavorable, the payoff is P 120,000. The cost of advertising is P45,000.
Required:
a. Draw a decision tree
1. Determine the expected value for each decision and event nodes.
2. Which alternative is the best for the businessman?

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