Purchase Solution

Expected Profit & Decision Tree

Not what you're looking for?

Ask Custom Question

As a result of an increase in demand for a town's parking facilities, the owners of a car park are reviewing their business operations. A decision has to be made to choose one of the following options:

Option 1. Make no change. Annual profit is $200,000. There is little likelihood that this will provoke new competition.

Option 2. Raise prices by 50%. If this occurs there is a 75% chance that an entrepreneur will set up in competition. The board's estimate of its annual profit in this situation would be as follows:

2A: With New Competitor 2B: Without New Competitior
Probability Profit $ Probability Profit $
0.3 300000 0.5 200000
0.4 240000 0.3 300000
0.3 160000 0.2 200000

Option 3. Expand the car park quickly at a cost of $10 000 keeping prices the same. The profits are then estimated to be like 2B in the attachment, except that the probabilities would be 0.6, 0.3 and 0.1 respectively.

Question

1. Draw a labelled decision tree to depict the problem.
2. What decision should the owners take? Please show details of your calculations.

Purchase this Solution
Solution Summary

The solution provides step by step method for the calculation of expected profit and preparation of decision tree. Formula for the calculation and Interpretations of the results are also included.

Purchase this Solution
Free BrainMass Quizzes
Measures of Central Tendency

This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.

Know Your Statistical Concepts

Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.

Terms and Definitions for Statistics

This quiz covers basic terms and definitions of statistics.

Measures of Central Tendency

Tests knowledge of the three main measures of central tendency, including some simple calculation questions.

View More Free Quizzes
Related BrainMass Solutions

  • Construction of a decision tree

    Construct a decision tree to help analyze this problem. What should the medical professionals do? Please refer attached file for decision tree. In the above decision tree, we start with a decision point denoted by a square.

  • decision tree listing these profit outcomes

    (a) Calculate the firm's expected values and standard deviations for revenues and cost, respectively. (b) Identify the possible profit outcomes? Draw a decision tree listing these profit outcomes.

  • Expected values and Decission Tree

    decision at initial node in the decision tree is to introduce the new cream and expected profit for the best decision is $16,800 Solution explains the steps needed in choosing the best alternative with the help of expected values and decission tree

  • Payoffs, Matrices, and Decision Trees

    d) Using the decision tree, the best expected value decision is to opt for a half franchise.

  • Decision Tree Analysis

    Analyze the decision tree, computing all the expected values, and recommend what the entrepreneur should do. Analysis of the decision tree starts with the calculation of expected payoffs from right to left as shown in the decision tree. 1.

  • Linear programming

    Draw the decision tree for this problem.

  • Decision Tree and Expected Values

    Draw a decision tree of the problem and determine the best solution and the expected net profit. See attached file. Draw a decision tree of the problem and determine the best solution and the expected net profit.

  • Creating a Decision Tree: Understanding Risk Tolerance Levels

    This solution illustrates how to compute the profit or loss under alternative decisions and how to create a decision tree (complete with expected values for each decision) in Excel.

  • Decision Tree and Optimal Decision Making

    a) Draw a decision tree for the above and compute the expected returns for each branch of the decision tree. b) Determine the optimal strategy (what size facility to build if any) and its EMV. (10 points) The solution file is attached.

View More Related Solutions