A businessman must decide whether to open a new mini grocery branch or simply extend the number of hours of its operation on its existing branch with a payoff of Php150,000. According to his friend, demand at a new location can either be low or high, which he probabilities are estimated to be 35% and 65%, respectively. If a new branch is opened and demand proves to be high, the businessman may choose to operate 24hrs (payoff is Php350, 000) or to operate 12hrs (payoff is Php200,000). If a new branch is opened and demand proves to be low, there is no need to operate on a 24-hr basis but instead, they will just stick to 12-hr operation with payoff of Php100,000 or enhance marketing strategy through advertising. Projected response to advertising may either be favorable or not favorable, with estimated probabilities of 40% and 60%, respectively. If demand is favorable, the payoff grows to Php310,000 and if the response in unfavorable, the payoff is Php120,000. The cost of advertising Php45, 000. a.) Determine the expected value of each decision and event nodes. b.)Which alternative is the best for the businessman?
A businessman must decide whether to open a new mini grocery branch or simply extend the number of hours of its operation on its existing branch with a payoff of Php150,000. According to his friend, demand at a new location can either be low or high, which he probabilities are estimated to be 35% and 65%, respectively. If a new branch is opened and demand proves to be high, the businessman may choose to operate 24hrs (payoff is Php350, 000) or to operate 12hrs (payoff is Php200,000). If a new branch is opened and demand proves to be low, there is no need to operate on a 24-hr basis but instead, they will just stick to 12-hr operation with payoff of Php100,000 or enhance marketing strategy through advertising. Projected response to advertising may either be favorable or not favorable, with estimated probabilities of 40% and 60%, respectively. If demand is favorable, the payoff grows to Php310,000 and if the response in unfavorable, the payoff is Php120,000. The cost of advertising Php45, 000.
a.) Determine the expected value of each decision and event nodes.
b.)Which alternative is the best for the businessman?
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