A company wants to build a plant but is considering the size.The table below shows their payoffs under different states ofdemand.
| Demand |
| Low (p=0.45) | High (p=0.55) |
| Small Plant | 500000 | 500000 |
| Medium Plant | 200000 | 800000 |
| Large Plant | -200000 | 1000000 |
They can hire a consultant who can conduct a survey to evaluatedemand. The consultant will report to the company whether demand isstrong or weak. The probabilities are 0.60 and 0.40 for strong andweak survey results respectively. The conditional probabilities fordemand given survey results are as follow:
P(Low/Strong) = 0.35; P(High/Strong) = 0.65;
P(Low/Weak) = 0.70; P(High/Weak) = 0.30;
a) Draw the decision tree for this problem including with andwithout a survey.
b) What is the best decision without a survey?
c) What is the decision strategy when survey is conducted?
d) What is the EVPI?
e) What is the EVII
