GSCM 209 Operations Analysis Week 6 Quantitative Module Decision-Making Tools_Homework Answer

Even though independent gasoline stations have been having a difficult time, Susan Helms has been thinking about starting her own independent gasoline station. Susan’s problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis,
Susan developed the following table: For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000.

Size of First Station Good Market ($) Fair Market ($) Poor Market ($)
Small 50000 20000 -10000
Medium 80000 30000 -20000
Large 100000 30000 -40000
Very Large 300000 25000 -160000
e) Develop a decision tree. Assume each outcome is equally likely, then find the highest EMV.

• A.3
Clay Whybark, a soft-drink vendor at Hard Rock Cafe’s annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):
States of Nature ( demand)
Alternatives Big Average Small
Large Stock $ 22000 $ 12000 -$ 2000
Average Stock $ 14000 $ 10000 $ 6000
Small Stock $ 9000 $ 8000 $ 4000
The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average demand, and 0.2 for a small demand.
a) Determine the alternative that provides Clay Whybark the greatest expected monetary value (EMV).
Constructing a decision tree for Clay Whybark for various alternatives:

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