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Refer to the decision tree attached. The pay-offs are profit values under each scenario. The best decision is ___ (type “A” for Invest and “B” for Do not Invest) and the expected pay-off is ___.
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Solved: Refer to the decision tree attached. The pay-offs are profit values under each scenario
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Expert Answer
Invest option:
Success = 0.9 * 45,000 = $40,500
Failure = 0.1 * -15,000 = -$1500
Total = $40,500 – $1500 = $39,000
Do not invest:
Success = 0.5 * 30,000 = $15,000
Failure = 0
Total = $15,000
The best decision is Invest (A)
The expected pay off is $40,500 (That is the profit of Option A (Invest)
