The study what is his expected monetary value

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Problem 6 Mark M. Upp has just been fired as the university bookstore manager for setting prices too low (only 20 percent above suggested retail). He is considering opening a competing bookstore near the campus, and he has begun an analysis of the situation. There are two possible sites under consideration. One is relatively small (Site 1), while the other is large (Site 2). If he opens at Site 1 and demand is good, he will generate a profit of $50,000. If demand is low, he will lose $10,000. If he opens at Site 2 and demand is high, he will generate a profit of $80,000, but he will lose $30,000 if demand is low. He also has the option of not opening either. He believes that there is a 50 percent chance that demand will be high. Mark can purchase a market research study. The market research company indicates that the survey will be positive when the demand is high 65% of the time, P(positive| high demand) = 0.65. The company also tells Mark that the survey will be positive when the market has poor demand 40% of the time, P(positive| low demand) = 0.40. There is a 52.5% probability that the survey will positive. a. Draw a decision tree for this problem. b. If Mark does not do the study what is his expected monetary value? c. The study will cost $5,000. Should Mark do the study? Why?

Reference no: EM131034514

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