Zookal Homework Help

Homework Help

  1. Business
  2. Operations Management
  3. f j brewerton retailers inc must decide whether to build...

Question: f j brewerton retailers inc must decide whether to build...

Question details

F. J. Brewerton Retailers, Inc., must decide whether to build a small or a large facility at a new location in Omaha. Demand at the location will either be low or high, with probabilies 0.4 and 0.6, respectively. If Brewerton builds a small facili and demand proves to be high, he then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $280,000. If a small facility is built and demand proves to be high, but Brewerton then decides not to expand the facility, the payoff is $213,000. If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $230,000. Ifa large facility is built and demand proves to be low, Brewerton then has the option of stimulating demand through local advertising. If he does not exercise this option, then the payoff is $40,000. If he does exercise the advertising option, then the response to advertising will either be modest or sizable, with probabilities of 0.5 and 0.5, respectively. If the resp is modest, the payoff is $50,000. If it is szable, the payoff is $210,000. Finally, If a large facility is built and demand proves to be high, then no advertising is needed and the payoff is $400,000. a) What should Brewerton do to maximize his expected payoff? Choose the correct decision tree below. Note that all payoffs are in $1,000s. 230 230 low (0.4) ow (0.4) and 280 280 h (0 high (0 dont expand dont expand 213 modest (0.5 modest (0.5) asabl으 210 large low (0.4 40 40 dont advertise dont advertise 400 400 Enter vour answer in the answer box and then click Check AnswerBrewerton should build the large facility. If demand proves to be low, then advertise b) What is the value of this expected payoff? The expected payoff is $(round your response to the nearest dollar) to stimulate demand

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution