b.

First, we estimate the probability of either positive feedbacks or negative

feedbacks for the design in the survey. Then, we determine the upcoming probability
of whether the sales will be strong or moderate after the given feedbacks. Both of
these calculations can be represented in the template for upcoming probabilities on
the CD which results will be shown below.
 Data

P ( Finding / State of Nature)

Finding
State of Nature Prior probability
Positive Attitude Negative Attitude
Strong sales 0.6 0.7 0.3
Moderate sales 0.4 0.2 0.8

 Posterior Probabilities

P ( State of Nature / Finding)

State of Nature
Finding P ( Finding)
Strong sales Moderate sales
Strong sales 0.5 0.84 0.16
Moderate sales 0.5 0.36 0.64

Next, there is a 50% chance that the survey will indicate positive feedbacks and a
50% chance of negativity towards the new car. The probability of strong sales
increases by 84% with positive feedbacks and decreases by 36% with negative
feedbacks.
The revised decision tree shown below begins with an event node with two branches
indicating two possible outcomes of the survey. There is a decision of whether to
share the plant in Indiana, or open a new plant in Georgia, represented by a pair of
branches.
Finally, after the final decision, there will either be strong or moderate sales which is
represented by event nodes with two branches, and uses the upcoming probabilities
given the results of the survey.
If the survey recieve positive feedbacks for the car, they should open a dedicated
plant in Georgia. On the other hand, if it indicates a negative attitude, they should
share the plant in Indiana with an expected profit of $4.84 millionss.
c. The expected value of sample information = the expected payoff with the
information - the expected payoff without the information. With the survey
information, the expected payoff is $4.84 millions.
Without the survey information, the expected payoff is $4.4 millions. Thus, the
expected value of sample information in part b is $440 thousand. This will be the
peak amount that they are willing to pay for the marketing survey while it is still
worth conducting.

9. S2
a. Constructing the decision tree.
The first decision is Meredith going to court or accepting the settlement offer, which is
represented by decision node 1 in Figure.

The two branches leading out of this node equals two alternative options.

If Meredith goes to court ,there will be a decrease in profit by 1$ million because the
expected costs of going to trial is $1 million. On the other hand, the settlement offer comes
with a 1.5 million profit because MusicMan Software has offered Meredith $1.5 million to
settle this case out of court.

Node 2 is an event node representing the random event after the lawsuit.

The two branches derived from node 2 represent two possible results.

Meredith feels that she has a 60 percent chance of winning the case, so the winning
probability is 60%=0.6. If she won, she would receive $5 million for damages which earns a
$5 million profit.

With the winning chance given, she would still have a 100-60=40% chance of losing or a
losing probability of 0.4. But if she lost, she would get nothing, which leads to event node 5.

The two branches emanating from this node represent two possible cost fees. Since there is
a 50 percent chance the judge would order her to pay for court expenses and also lawyer
fees for MusicMan which is an additional $1 million cost, the possible cost fees would be 0.5
and the profit in this case would be minus $1 million. With a probability of not having to pay
the fees by 100-50=50%=0.5, Meredith would still earn no profit.

Finally we have a complete decision tree as shown below.

a.