Consider a variation of the PDC decision shown.
The company must first decide whether to undertake the market research study.
If the market research study is conducted, the outcome will either be favorable, F, or unfavorable, U.
Assume there are only 2 decision alternatives, d1 and d2, and 2 states of nature, s1 and s2. The payoff table showing profit is as follows:
s1 s2
d1 100 300
d2 400 200
a. Show a decision tree.
b. Using the following probabilities, what is the optimal decision strategy?
P(F) = 0.56; P(s1/F) = 0.57; P(s1/U) = 0.18; P(s1) = 0.40
P(U) = 0.44; P(s2/F) = 0.43; P(s2/U) = 0.82; P(s2) = 0.60