Question

5. Construct a decision tree for the following decision situation and indicate the best decision. Fenton and Farrah Friendly, husband-and-wife car dealers, are soon going to open a new dealership. They have three offers: from a foreign compact car company, from a U.S. producer of full-sized cars, and from a truck company. The success of each type of dealership will depend on how much gasoline is going to be available during the next few years. The profit from each type of dealership, given the availability of gas, is shown in the following payoff table:

Dealership Gasoline Availability Shortage 0.7 Surplus 0.3 Compact cars $25,000 $150,000 Full-sized cars -90,000 650,000 Trucks 125,000 170,000 Decision Tree diagram to complete: 1 2 3 4 Compact cars Full-sized cars Trucks Shortage 0.7 Surplus 0.3 Shortage 0.7 Surplus 0.3 Surplus 0.3 Shortage 0.7 $250,000 $150,00 0 -$90,000 $650,000 $125,000 $170,000

Answer 1