Cheryl Druehl Retailers Inc Must Decide Whether To Build A Small Or A Large Facility At A New Location In Fairfax Dem 1 (23.9 KiB) Viewed 19 times
Cheryl Druehl Retailers Inc Must Decide Whether To Build A Small Or A Large Facility At A New Location In Fairfax Dem 2 (20.68 KiB) Viewed 19 times
Cheryl Druehl Retailers, Inc, must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high with probabilities 0.0 and 0.4 respectively Cheryl budsmail Y BAR demand proves to be high, she then has the option of expanding the facility if a small facility is built and demand proves to be high and then the retailer expands the faclity, the payoff is $240,000 if a small tacility is built and demand proves to be high, but Cheryl then decides not to expand the facility, the payoff is $200,000 If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $230,000 If a large facility is built and demand proves to be low Chery then has the option of simulating demand through local advertising if she does not exercise this option, then the payoff is $40,000. If she does exercise the advertising option, then the response to advertising will either be modest or sizable, with probabilites of 0.5 and 05, respectively if the response is modest, the payoff is $35.000 if it is sizable, the payoff is $210.000. Finally, if a large facility is built and demand proves to be high, then no advertising is needed and the payoff is $600,000 a) What should Cheryl do to maximize her expected payo!? Question Ve Choose the correct decision tree below Note that all payoffs are in $1,000 OA OB. low (06) Sow (0.4) 2 urge high (04 low (0.6 expand don't expand modest (05) Cate 194 advertise dont advertise high (0.4) 230 Q -240 203 35 210 40 800 ddu + umal large high 10.4 Jew (06) 680 -230 Q expand -240 don't expand modest (05) -200 35 stalle advertise 210 40 dont adverte -600 high (0.4)
Oc smal large Cheryl should build the b) What is the value of this The expected payoff is $ 230 Q L 240 203 35 210 40 high (0.4) 600 facility. If demand proves to be low, then expected payoff? (round your response to the nearest dollar) low (0.4) 2 high (0.6) low (0.6) expand don't expand modest (0.5) (05) advertise don't advertise OD. to stimulate demand. 1 small large low (0.6) 2 high (0.4) low (0.6) expand 240 don't expand 203 modest (0.5) 35 sittin 210 (0.5) 40 600 advertise 3 don't advertise high (0.4) 230 Q ROO
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