Solve the following maximum-profit problem by using a decision tree.

Question:

Solve the following maximum-profit problem by using a decision tree.

Low demand Average demand High demand
Alternatives Prob.=0.3 Prob.=04 Prob.=0.3
Expand Plant $250,000 $400,000 $400,000
Build a new plant $200,000 $350,000 $440,000
Stay same $300,000 $300,000 $300,000

Decision Tree:

Decision tree is a tool of decision making. It uses a graph that looks like a tree, showing possible consequences of each event/alternatives available to opt from. It also include the chance of occurrence of outcomes, resource cost and utility.

Answer and Explanation:

The following shows the decision tree of the given problem -

Decision Tree

Now, lets calculate the total expected yield of each alternative as...

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What Is a Decision Tree? - Examples, Advantages & Role in Management

from Introduction to Management: Help and Review

Chapter 2 / Lesson 12
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