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Exercise 2

1. Todays Electronics specializes in manufacturing modern electronic components. It


also builds the equipment that produces the components. Jimmy, who is responsible
for advising the president of Todays Electronics on electronic manufacturing
equipment, has developed the following table concerning a proposed facility:

Probabilities
Large facility
Medium-sized facility
Small facility
No facility

Profit (RM)
Good market
Poor market
0.65
0.35
550,000
-310,000
300,000
-100,000
200,000
-100,000
0
0

a. Draw the decision tree to represent this situation. What do you recommend?
b. The president of Todays Electronics is considering the possibility of conducting
a survey on the market potential for industrial equipment repair using robots.
There is a 65% chance that the survey will be favorable. The probability of a good
market given a favorable survey is estimated to be 0.75 and the probability of a
good market given an unfavorable survey is estimated to be 0.3. The cost of the
survey is RM5, 000. What do you recommend?
c. Compute the conditional probability values of a favorable or unfavorable survey
result given a good or poor market.
Solution (c):
G- Good market
- Poor Market
(
(
(
(

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)
)
)
)

F-Favorable survey result


- Unfavorable survey result