A company wants to decide whether he should expand large or expand small. If he expands large, the sales revenue would rise up to P400,000 given the probability of 45%, and lower down to P50,000. If he expands small, the sales revenue would lower to P30,000 given the probability of 60%, and rise up to P278,000. If the company would use decision trees to decide, what would they choose?
Expand Large
Expand Small
400,000
35%
50,000
65%
278,000
60%
30,000
40%
172500
178800
The company should expand small
Maricel wants to decide whether to upgrade the restaurant to attract more customers or not. Upgrading the restaurant costs P250,000 and if she upgrades, morelikely 75% the sales will be P765,000, and would go down to P300,000. If she doesn’t upgrade, morelikely 80% the sales will be P300,000 and would go down to P150,000. If Maricel would use the decision trees, what should she do? 765,000 Upgrade
Don’t Upgrade
75%
648750 300,000
25%
300,000
80%
150,000
20%
270000
Maricel should upgrade the restaurant.
Sales Cost to Upgrade
Upgrade 648750 250000 398750
Don’t 270000 0 270000
Jollihonee is deciding whether to advertise their new product or to let an entertainer play the mascot of the new product. Advertising the product would cost P10,000. If Jollihonee will advertise, the mostlikely sales will be P687,000 with the chance of 84% while the pessimistic sales would be P386,000. Hiring an entertainer also with the making of the mascot would cost P50,000. If Jollihonee will let an entertainer play the mascot, the mostlikely sales will be P800,600 with the chance of 76% while the pessimistic sales will be P400,000. If Jollihonee will use the decision trees , what would the company do?
Advertise
Mascot
687,000
84%
386,000
16%
800,600
76%
400,000
24%
638840
Sales Cost
704456
Jollihonee should hire an entertainer to play the mascot of the new product.
Advertise Mascot 638840 704456 10000 50000 628840 654456
Zed and Adrian and run a small bicycle shop called "Z to A Bicycles". Zed and Adrian wants to decide if they should order 500 kid bicycles that cost P250. The shipping cost is P10 per bicycle. If Zed and Adrian orders, The probability of demand of Mostlikely sales and pessimistic sales is P300,000 and P200,000 respectively. If not, it would be P100,000 , and P40,000 respectively. With the probabilities of 0.76, 0.24, 0.56, 0.44 respectively.Using the Decision Tree, what should Zed and Adrian do?
Order Kiddie Bicycle
Don’t Order Kiddie Bicycle
300,000
76%
276000 200,000
24%
100,000
56%
40,000
44%
73600
Zed and Adrian should Order kid bicycle.
Sales Cost
Order 276000 130000 146000
Don’t 73600 0 73600
Ronald decides whether to invest P100,000 or put up a business. If he invests, there is a 60% chance that he would get P400,000 and P150,000 if the bank would bankrupt. If he put up a business, mostlikely 40% the sales would be P400,000 and P200,000 on low sales. If Ronald uses a decision tree, what choice should he make?
Invest
Business
400,000
60%
150,000
40%
400,000
40%
200,000
60%
300000
280000
Ronald should invest the P100,000
The Newox Company is considering whether to sell the gas or put up a business. The company must spend P70,000 to cap the well and provide the necessary hardware and control equipment. If they drill and find gas, there are two alternatives. Newox could sell to West Gas, which has made a standing offer of P800,000 to purchase all rights to the gas well's production. Alternatively, if gas is found, Newox can decide to keep the well instead of selling to West Gas; in this case Newox manages the gas production and takes its chances by selling the gas on the open market. At the current price of natural gas, if gas is found it would have a value of P160,000 on the open market. However, there is a possibility that the price of gas will rise to double its current value, in which case a successful well will be worth P320,000. The company's engineers feel that the chance of finding gas is 30 percent; their staff economist thinks there is a 60 percent chance that the price of gas will double. If the company uses decision trees, what decision would they make?
Sell to West Gas
Business
800,000
30%
240000 0
70%
320,000
60%
160,000
40%
256000
Newox should put up a business with the gas collected.
Sales Cost
West Gas Business 240000 256000 70000 70000 170000 186000
Really Big Ideas, Inc., a small company that develops inventions for the consumer market, has recruited you as a consultant to make a recommendation on a critical business decision. The company wants to decide which project to make for the three-month window of opportunity to develop a new product using new pattern recognition software the company recently created. The smoke and fire detector will cost P100,000 to develop, and if it succeeds the Business Analysis department says it will generate revenue of P1,000,000 and P300,000 if not. The motion detector, which uses conventional household lighting, will only cost $10,000 to develop. He adds that the analysts expect such a device to generate P300,000 in revenue and P50,000 if not. The company estimated that the smoke and fire detector has a 50% chance of success, and that the motion detector has an 80% chance of success. If the company would use decision trees, what project would they make?
Smoke and Fire Detector
Motion Detector
1,000,000
50%
300,000
50%
300,000
80%
50,000
20%
650000 Sales Cost
250000
Really Big Ideas should pick Smoke and Fire Detector for the project.
Smoke and Fire Motion Detector Detector 650000 250000 100000 10000 550000 240000
You are deciding which numbers to pick to bet in a lottery. Your friend gives you set of numbers A and B. For A, the bet costs P1,000 and has a 10% chance of winning P1,000,000. For B, the bet costs P400 and has a chance of 60% of winning P200,000 based on the last results. In using the Decision tree, which set of numbers would you pick? 1,000,000 Set A
Set B
10%
100000 0
90%
200,000
60%
0
40%
120000
You should bet on the numbers on Set B
Sales Cost
Set A 100000 1000 99000
Set B 120000 400 119600
A local store is deciding whether to develop and innovate a new product. The cost to be incurred is expected to be $ 1,000,000, there is a 70% chance that the product will be successful, and a 30% chance that it will fail. If it is successful, the levels of expected profits have been estimated as follows, depending on whether the product’s ability to be sold is most likely, more likely or likely: Probability Most Likely More Likely Likely
0.2 0.5 0.3
Profit $2,00,000 $1,000,000 $500,000
If it fails, there is a 0.7 probability that the research and development work can be sold for $60,000 and a 0.3 probability that it will be worth nothing at all. Draw a decision tree. $0
Do not develop
high .2 sucess .7
Develop product cost $ 1,000,000
$ 1,050,000
medium .5 $ 1,000, 000 low .3
$ 747,600
sell worth .7 failure .3
$ 2,000, 000
$ 500, 000 $ 60, 000
$ 42,000 sell nothing .2
$0
pected to be $ . If it is successful, bility to be sold is
nd a 0.3
Charlotte Watson, the manager of a small sales company, has the opportunity to buy a fixed quantity of a new type of Android tablet which she can then offer for sale to clients. The decision to buy the product and offer it for sale would involve a fixed cost of P200,000. The number of tablets that will be sold is uncertain, but Charlotte judges that Sales will be “poor” with probability 0.2; this will result in an income of P100,000. Sales will be “good” with probability 0.8; this will result in an income of P350,000. For an additional fixed cost of P30,000, market research can be conducted to aid the decision– making process. The outcome of the market research can be either positive or negative, with probabilities and sales of 0.58 and 0.42, P450,000 and P200,000 respectively. If the manager would use decision trees, what should he do?
Buy tablets w/o market research Buy tablets w/ market research
350,000
80%
100,000
20%
450,000
58%
200,000
42%
300000
345000
Charlotte must buy the tablets with market research
Sales Cost
tablets w/o market research 300000 0 300000
Buy tablets w/ market research
345000 30000 315000
Grazia recently opened a restaurant in Alabang. 6 months later, she is deciding whether to expand or not. Expanding the restaurant will cost her P350,000. If she decided to expand, the sales will be 80% of P2,000,000 during high peak and 20% of P1,000,000 during low peak. If she decided not to expand, the sales will be 70% of P500,000 and 30% P200,000 during low peak. Use a decision tree to help Grazia whether to expand or not.
Expand
Don’t Expand
2,000,000
80%
1,000,000
20%
500,000
70%
200,000
30%
1800000
410000
Sales Expd. Cost
Expand 1800000 350000 1450000
Don’t 410000 0 410000
Grazia should decide to expand her restaurant.
A company is deciding whether to develop and launch a new product. Research and development costs are expected to be $400,000 and there is a 70% chance that the product launch will be successful, and a 30% chance that it will fail. If it is successful, the levels of expected profits and the probability of each occurring have been estimated as follows, depending on whether the product’s popularity is high, medium or low: Probability High Medium Low
0.2 0.5 0.3
Profit $500,000 per annum for two years $400,000 per annum for two years $300,000 per annum for two years
If it is a failure, there is a 0.6 probability that the research and development work can be sold for $50,000 and a 0.4 probability that it will be worth nothing at all. Draw a decision tree.
$0
Do not develop
high .2 sucess .7
Develop product cost $ 400,000
$ 780,000
medium .5 low .3
$ 555,000
sell worth .6 failure .3
$ 1,000, 000 $ 800, 000 $ 600, 000 $ 50, 000
$ 30,000 sell nothing .4
$0
Jenny Lind is a writer of romance novels. A movie company and a TV network both want exclusive rights to one of her more popular works. If she signs with the network, she will receive a single lump sum, but if she signs with the movie company, the amount she will receive depends on the market response to her movie. What should she do?
Decision Sign in with movie company
Small Box Ofiice
movie co.
tv network
Large Box Office
$200,000 $1,000,000 $3,000,000
Sign in with tv $900,000 network Probabilities
Medium Box Office
0.3
$900,000
$900,000
0.6
0.1
200, 000 1,000,000
30% 60%
small medium
3,000,000 900,000 900,000
10% 30% 60%
large small medium
900,000
10%
large
960000
900000
Jenny should sign in with the movie company.
Mary is a manager of a gadget factory. Her factory has been quite successful the past three years. She is wondering whether or not it is a good idea to expand her factory this year. The cost to expand her factory is $1.5M. If she does nothing and the economy stays good and people continue to buy lots of gadgets she expects $3M in revenue; while only $1M if the economy is bad. If she expands the factory, she expects to receive $6M if economy is good and $2M if economy is bad. She also assumes that there is a 40% chance of a good economy and a 60% chance of a bad economy.
don't expand
expand
3,000,000
40%
1,000,000
60%
6,000,000
40%
2,000,000
60%
1800000
3600000
Sales Cost
Expand Don't Expand 3600000 1800000 1500000 2100000 1800000
Mary should decide to expand because the profit is higher.
Joe’s garage is considering hiring another mechanic. The mechanic would cost them an additional $50,000 / year in salary and benefits. If there are a lot of accidents in Providence this year, they anticipate making an additional $75,000 in net revenue. If there are not a lot of accidents, they could lose $20,000 off of last year’s total net revenues. Because of all the ice on the roads, Joe thinks that there will be a 70% chance of “a lot of accidents” and a 30% chance of “fewer accidents”. Assume if he doesn’t expand he will have the same revenue as last year.
hire
75,000
70%
higher chances of accidents
-20,000
30%
lower chances of accidents
46500
don't hire
0
Profit Cost
Hire 46500 50,000 -3500
Don't Hire 0 0
Joe should not hire the mechanic.
Gigi Hadid is deciding to move to another modelling agency. Due to her popularity and charisma, Storm Models Management and IMG Worldwide are trying to make their best to sign Gigi on their talents list. The following are the amounts and probabilities proposed by the agencies for Gigi's talent fee per contract. Help Gigi decide what agency she should sign in. Decision
TF for Editorials
TF for Commercials
Storm Models Management
$500,000
$3,000,000
IMG Worldwide $300,000
$4,000,000
Probabilities
SMM
IMG
0.4
0.6
500,000
40%
3,000,000
60%
300,000
40%
4,000,000
60%
2000000
2520000
Gigi Hadid should sign with IMG.
The owner of the Snow Fun Ski Resort wants to decide how the resort should be run in the coming winter season. The resort’s profits for this year’s skiing season will depend on the amount of snowfall during the winter. On the basis of prior experience, the probability distribution of snowfall and the resulting profit is summarized below. Amount of Snow
Probability
Profit
a.) > 40 inches b.) 20-40 inches
0.4 0.2
120,000 40,000
c.) < 20 inches
0.4
-40,000
The owner has recently received an offer from a larger hotel chain to operate the resort for the winter, guaranteeing a $45,000 profit for the season. The owner is also considering leasing snowmaking equipment for the season. If the equipment is leased, the resort will be able to operate full time, regardless of the amount of natural snowfall. If the owner decides to use snowmakers to supplement the natural snowfall, the profit for the season will be $120,000 minus the cost of leasing and operating the snowmaking equipment. The leasing cost will be about $12,000 per season, regardless of how much it is used. The operating cost will be $10,000 if the natural snowfall is more than 40 inches, $50,000 if it is between 20 and 40 inches, and $90,000 if it is less than 20 inches.
Large hotel operates Operates w/o a snowmaker
Operates with a snowmaker
$ 45,000 120000 40000
0.4 0.2
-40000 98000 58000
0.4 0.4 0.2
18000
0.4
40,000
58,000
ter, guaranteeing a season. If the snowfall. If the be $120,000 minus 0 per season, than 40 inches,
Clark Coffee operates a chain of five luxury shops in London. It is looking at two options to increase revenue accross the chain . The estimated impact of the tow options on sales (and their probabilities) are shown below as are the associated costs of each option.
Cost of Option Probability of High Sales Probability of Low Sales Result of High Sales Result of Low Sales
Launch Loyalty Card
Cut Prices
500,000 0.6 0.4 $ 1,000,000 $ 750,000
300,000 0.8 0.2 $ 800,000 $ 500,000
do nothing Launch loyalty card 900,000 cut prices
1,000,000
0.6
750,000
0.4
800,000
0.8
500,000
0.2
740,000
Sales Cost Net Gain
Launch Loyalty Card
Cut Prices
900,000 500000 400,000
740,000 300000 440,000
Clark Coffe should cut its prices.
Joebert decides to etablish his own business after graduating college. He is thinking of opening a restaurant or a coffee shop near the city center. The money he needs to open a restaurant is P3,000,000 and P4,000,000 for a coffee shop. During high sales, the restaurant yields an income of P8,000,000/yr and P7,000,000 for the coffee shop. During low sales, the restaurant yields an income of P3,000,000/yr and P4,000,000 fo the coffee shop. The probability of high sales is 40% and 60% for low sales.
Restaurant
Coffee Shop
8,000,000
40%
3,000,000
60%
7,000,000
40%
4,000,000
60%
5000000
5200000
Sales Cost
Restaurant 5000000 3,000,000 2,000,000
Joebert should open a restaurant.
C. Shop 5200000 4,000,000 1,200,000
Nobu New York decides to expand and build another branch in Los Angeles. It is has two options: Beverly Hills or Hollywood. The estimated sales of the two options(and their probabilities) are shown below as are the associated costs of each option.
Beverly Hills
Hollywood
Cost of Option Probability of High Sales Probability of Low Sales
10,000,000 0.5 0.5
10,000,000 0.75 0.25
Result of High Sales
20,000,000
20,000,000
Result of Low Sales
10,000,000
9,000,000
Beverly Hills
Hollywood
20,000,000
50%
10,000,000
50%
20,000,000
75%
9,000,000
25%
15,000,000
17,520,000
Sales Cost Net Gain
Beverly Hills
Hollywood
15,000,000 10,000,000 5,000,000
17,520,000 10,000,000 7,520,000
Nobu should build its new branch at Los Angeles.
Candice is stuggling. She can't think of what to do with her money. A friend told her, "Yo, why don't you start you own business?". She was so happy, thinking that her problem was already solved. She asked her friend what business should she start. Her friend suggested to either start a clothing shop or a parlor. The capital she needs to open a clothing shop is P500,000 and P400,000 for a parlor. During high sales, the clothing shop yields an income of P5,000,000/yr and P4,000,000 for the parlor. During low sales, the clothing shop yields an income of P500,000/yr and P600,000 fo the parlor. The probability of high sales is 50% and 50% for low sales.
Clothing shop
Parlor
5,000,000
50%
500,000
50%
4,000,000
50%
600,000
50%
2750000
2300000
Sales Cost
C. Shop 2750000 500,000 2,250,000
Parlor 2300000 400,000 1,900,000
Candice should start a clothing shop.
Jenniffer Lawrence auditioned for 3 movie roles. Out of the 3 movies she auditioned, she was booked for 2 roles as the main character. After she received the schedules, she found out that the schedule for filming of the two movies conflict with each other. She decided to drop one movie because of the schedule conflict. The table below summarizes the amount of income she'll get for each movies. Decision Movie X Movie Y Probabilities
Movie X
Movie Y
If the movie is a If the movie is not a blockbuster blockbuster $15,000,000 $18,000,000 0.7
$10,000,000 $7,000,000 0.3
15,000,000
70%
10,000,000
30%
18,000,000
70%
7,000,000
30%
13500000
14700000
Jenniffer Lawrence should pick movie Y.
for 2 roles as e two movies elow
Coco owns a coffee shop near AUF. Students love to stay on his coffee shop because of the authentic taste of his coffee and the sweet smell of freshly baked cookies. But most of all, students keep on coming back because the shop is open for 24hrs which means they can stay all night to study and burn the midnight oil. Coco thinks of opening another branch near HAU or SPCF. The money he needs to open a new branch is P3,000,000. During high sales, the shop near HAU will yield an income of P7,000,000/yr and P6,000,000 for the shop near SPCF. During low sales, the shop near HAU will yield an income of P3,000,000/yr and P3,500,000 for the shop near SPCF. The probability of high sales is 85% and 15% for low sales.
HAU
SPCF
7,000,000
85%
3,000,000
15%
6,000,000
85%
3,500,000
15%
6400000
5625000
Sales Cost
HAU 6400000 3,000,000 3,400,000
SPCF 5625000 3,000,000 2,625,000
Coco should build his new branch near HAU.
A Company is currently working with a process, which, after paying for materials, labour and so on brings a profit of Rs. 12,000. The company has the following alternatives: (i) The Company can conduct research R1 which is expected to cost Rs 10,000 and having 90% probability of success. IF successful, the gross income will be Rs 26,000. (ii) The company can conduct research R2 , expected to cost Rs 6,000 and having a probability of 60% success. It successful, the gross income will be Rs 24,000. Which alternative should the company pick?
Research 1
Research 2
26,000
90%
0
10%
24,000
60%
0
40%
23400
14400
The Company should do the Research No.1
Sales Profit Cost
Research Research 1 2 23400 14400 12000 12000 10000 6000 25400 20400
Boojee Coffee operates a chain of five luxury coffee shops in Philippines. It is looking at two options to increase revenues across the chain. The estimated impact of the two options on sales (and their probabilities) are shown below: What should the company do? Loyalty Card Cut Prices Cost 600,000 300,000 % of High Sales 0.6 0.8 % of Low Sales 0.4 0.2 Result of High sales 2,000,000 800,000 Result of Low Sales 1,500,000 500,000
Loyalty Card
Cut Prices
2,000,000
60%
750,000
40%
1,500,000
80%
500,000
20%
1500000 Sales Cost
1300000
The company shout Cut prices instead of introducing the Loyalty Card
Loyalty Card Cut Prices 1500000 1300000 600000 300000 900000 1000000
The manager of a small business has the opportunity to buy a fixed quantity of a new product and offer it for sale for a limited time. The decision to buy the product and offer it for sale would involve a fixed cost of P150,000. The amount that would be sold is uncertain but the manager judges that There is a probability of 0.4 that sales will be “poor” with an income of P80,000. There is a probability of 0.6 that sales will be “good” with an income of P240,000. For an additional fixed cost of P20,000, the product can be sold for a trial period before a final decision is made. The result of the trial will be “poor” with probability 0.55, “good” with probability 0.45. with the sales of P70,000 and P300,000 respectively.
Buy product Offer to sale
Buy Product Trial Period
240,000
60%
80,000
40%
300,000
45%
70,000
55%
176000
173500
The manager should buy the product and offer it for sale.
Sales Cost
Buy product Buy Product Offer to Trial Period sale 176000 173500 150000 170000 26000 3500
A shipping company wants to decide whether to ship their product to France or China. If they ship their product to France, the probability of getting a high sale of P20M is .80, while low sale of P3M for .20. If they ship their product to China, the probability of getting a low sale of P6M is 0.40, while high sale of P25M for .60. What should the shipping company pick?
France
China
20,000,000
80%
3,000,000
20%
25,000,000
60%
6,000,000
40%
16600000
17400000
The company should ship their product to China.
Linda's company needs to raise their sales, they decide whether to add another floor to the company's building or to renovate the existing floors. Adding another floor costs P500,000 along with the furniture needed. Renovating the existing floor costs P300,000. Linda estimates that the high sales will be P2M and low sales P1M with the probability of 0.7, 0.3 respectively if she adds another floor, P1.5M and P800K with the probability of 0.6, 0.4 respectively if she renovates the existing floors. What should Linda do? Add another floor
Renovate existing floors
2,000,000
70%
1,000,000
30%
1,500,000
60%
800,000
40%
1700000
1220000
Linda should add another floor to the company to raise sales.
Sales Cost
Add Renovate another existing floor floors 1700000 1220000 500000 300000 1200000 920000
The manager of a small business has the opportunity to make a limited edition of a new product and offer it for sale. The decision to make the product and offer it for sale would involve a cost of P250,000.The manager judges that There is a probability of 0.46 that sales will be “poor” with an income of P440,000, There is a probability of 0.54 that sales will be “good” with an income of P820,000. For an additional cost of P30,000, the company can advertise the product on the media and the result will be either “poor” with probability 0.35, “good” with probability 0.75. with the sales of P300,000 and P500,000 respectively.
Make the product and Sell
Make the product and Advertise
820,000
54%
440,000
46%
500,000
75%
300,000
35%
645200
480000
The manager should make the product and sell it.
Sales Cost
Make the Make the product and product Advertise and Sell 645200 480000 250000 280000 395200 200000
A large company wants to decide whether to advertise their product to Canada or London. If they advertise their product to Canada, the probability of getting a high sale of P1M is .56, while low sale of P700K for .44. If they advertise their product to London, the probability of getting a low sale of P800K is 0.34, while high sale of P1.2M for .66. Where should the company advertise their product?
Canada
London
1,000,000
56%
700,000
44%
1,200,000
66%
800,000
34%
868000
1064000
The company should advertise their product to London.
A company wants to decide whether he should expand large or not expand at all. If he expands large,the costs of expanding is P200,000 and the sales revenue would rise up to P600,000 given the probability of 65%, and lower down to P150,000. If he doesnt expand, the sales revenue would lower to P60,000 given the probability of 47%, and rise up to P500,000. If the company would use decision trees to decide, what would they choose?
Expand Large
Not Expand at All
600,000
65%
150,000
35%
500,000
47%
60,000
53%
442500
266800
The company should not expand at all.
Sales Cost
Not Expand Expand at Large All 442500 266800 200000 242500 266800
Polis is an expert musician who charged P100,000 for companies who invited him to play on music concerts. Suddenly, 2 companies booked for Polis on the same day, Now Polis has to decide which company he would go. The 1st company offered Polis 10% of their revenue if they gain a high sale of P10M and the low sale is P1M. The 2nd company offered Polis 20% of their revenue if they gain a high sale of P12M and the low sale is P3M. The probabilities are 0.66, 0.34, 0.23, 0.77 respectively. What company should Polis pick?
Company 1
Company 2
10,000,000
66%
1,000,000
34%
12,000,000
23%
3,000,000
77%
6940000
5070000
Polis should pick Company 2
Sales Profit
Company Company 1 2 694000 1014000 100000 100000 794000 1114000
A company decided to launch a new product and advertise it. They will either choose to make this product in rubber or leather. The costs are P400,000 and P600,000 respectively. If they choose rubber, the expected sales is P657,000 and the low sales is P345,000. If they choose leather, the expected sales is P800,000 and the low sales is P256,000. The probabilities are 0.62,0.38,0.59,0.41 respectively. What should the company use to make the product? 800,000 Leather
Rubber
62%
Rubber
593280 256,000
38%
657,000
59%
345,000
41%
Sales Cost
529080
The company should launch the new product and make it in Rubber
Leather 593280 600000 -6720
529080 400000 129080
Len Spam operates a luxury spa in Chicago. Len is looking for a way to increase revenues and came up with two options. The estimated impact of the two options on sales (and their probabilities) are shown below: What should Len do? Prestige Card Cut Prices Cost 870,000 678,400 % of High Sales 0.63 0.52 % of Low Sales 0.37 0.48 Result of High sales 845,000 625,000 Result of Low Sales 487,000 369,000
Prestige Card
Cut Prices
845,000
63%
487,000
37%
625,000
52%
369,000
48%
Cut Prices
712540 Sales Cost
502120
Len Spam should introduce the Prestige Card to increase the revenue.
Prestige Card 712540 502120 870000 678400 -157460 -176280
Oishi Crackers has a new branch in Marilao and is need of a new manager. An old friend of the president came and asked for a salary of P100,000 and an experienced manager costs P150,000. If they hire the old friend of the president, the mostlikely sales are P896,000 and the low sales are P657,000. If they hire the experienced manager, the mostlikely sales are P900,000 and the low sales are P700,000. The probabilities are 0.78,0.22,0.80,0.20 respectively. Who should Oishi Crackers hire?
Old Friend
Experienced Manager
896,000
78%
657,000
22%
900,000
80%
700,000
20%
Experienced
843420
860000
Oishi Crackers should hire the old friend of the president.
Sales Cost
Manager Old Friend 843420 860000 100000 150000 743420 710000
The owner of Super Saiyan pool resort wants to add a new pool to the resort. The management wants to decide on the length of the pool, the first length is 10m, it costs P500,000 to build and the management expects that the sales will be P2,800,000 and the low sales will be P500,000. the second length is 15m, it costs P800,000 to build and the management expects that the sales will be P3,200,000 and the low sales will be P800,000. The probabilities are 0.68,0.32,0.78,0.22 respectively. What is the length that the owner should pick?
10m
15m
2,800,000
68%
500,000
32%
3,200,000
78%
800,000
22%
2064000 Sales Cost
2672000
The length that the owner of the Super Saiyan should pick is 15m.
10m 15m 2064000 2672000 500000 800000 1564000 1872000
Pike Company is a gaming company where they produce gaming equipment for gamers. They already have their own product which the expected sales is P600,000 and the low sales is P450,000. The company hired a new technician where he suggested to upgrade the old version into a new one with an additional cost of P50,000. With this, the expected sales is P1,000,000 and the low sales is P500,000. The probabilities are 0.46,0.54,0.40,0.60 respectively. Given the data, what should Pike Company do?
Old version
Upgrade
600,000
46%
450,000
54%
1,000,000
40%
500,000
60%
519000 Sales Cost
700000
The Company should upgrade as suggested by the new technician.
Old version 519000 519000
Upgrade
700000 50000 650000
Jane's Company specializes in fashion and cosmetics. Their expected sales is P650,000 and the low sales is P500,000. Now Kate's company requested to merge with Jane's company, with this the expected sales will rise to P800,000 and the low sales is P600,000. The probabilities are 0.72, 0.28, 0.68, 0.32 respectively. Should Jane's Company merge with Kate's company?
Merge
Don’t Merge
650,000
72%
500,000
28%
800,000
68%
600,000
32%
608000
736000
Jane's Company shouldn't merge with Kate's Company
An art dealer has a client who will buy the masterpiece Rain Delay for $50,000. The dealer can buy the painting now for $40,000 (making a pro_x000C_t of $10,000). Alternatively, he can wait one day, when the price will go down to $30,000. The dealer can also wait another day when the price will be $25,000. If the dealer does not buy by that day, then the painting will no longer be available. On each day, there is a 2/3 chance that the painting will be sold elsewhere and will no longer be available. (a) Draw a decision tree representing the dealers decision making process. (b) Solve the tree. What is the dealers expected proit? When should he buy the painting? (c) What is the Expected Value of Perfect Information (value the dealer would place on knowing when the item will be sold)? PF = Profit (a) 20000 PF 10000 PF
2/3 % 2/3 % (b) The value is 10, for an expected pro t of $10,000. He should buy the painting immediately. (c) With probability 2/3, the painting wil l be sold on the 1rst day, so should be bought immediately. With probability 1/3(2/3) it wil l be sold on the second day, so should be bought after one day. Final ly, with probability 1/3(1/3) it wil l not be sold on the _x000C_rst two days, so should be bought after two days. The value of this is 2/3(10)+1/3(2/3)20+1/3(1/3)25 = 13.89. The EVPI is therefore $3,889.
25000 PF
0 PF
ately. With ly, with probability he value of this is
