Steve is the director of operations for a diamond company. Thecompany is considering whether to launch a new product? line, whichwill require building a new facility. The research required toproduce the new product has not been proven to work in a?full-scale operation. If Steve decides to build the new facilityand the process is? successful, the company will earn a profit of720,000. If the process is? unsuccessful, his company will realizea loss of 900,000. Steve estimates that the probability of the?full-scale process succeeding is 62%. Steve has the option ofconstructing a pilot plant for 59,000 to test the new processbefore deciding to build the? full-scale facility. He estimatesthere is a 54% probability that the pilot plant will provesuccessful. If the pilot plant succeeds he thinks the chance of thefull scale facility succeeding is 87%. if the pilot plant fails, hethinks the chance of the full scale facility succeeding is only35%. Complete parts a, b, and c below.
A.) Construct a decision tree with all of the known informationlabeled
B.) Advise what to do ( should he build the pilot plantfirst?)
C.) what is the most they should pay to construct the pilotplant?
