Use the information below to answer the following question(s).
Hats-R-Us would like to produce a new design of hats for the upcoming Major league Baseball World Series. They need to decide to produce a large quantity or small quantity of hats prior to the event starting. Eventual demand for this new design will be strong or weak with a 50/50 chance of each level occurring. The following table shows the payoff for each combination of production size and demand level, in thousands of dollars.
Hats-R-Us also has the option of conducting a market survey at a cost of $10,000 to acquire more accurate information about the likelihood of each demand level. If the survey results are positive, there is an 83% probability that the eventual demand for the new hat design will be strong. If the survey results are negative, there is a 23% probability that the eventual demand for the new hat design will be strong.
Construct a decision tree to answer the following set of questions.
Based on the decision tree, which of the following choices describes the final decision for Hats-R-Us?
▸ Conduct the survey and choose a large production quantity regardless of the survey results.
▸ Conduct the survey and choose a large production quantity if survey results are positive and choose a small production quantity if survey results are negative.
▸ Do not conduct the survey and choose a large production quantity.
▸ Do not conduct the survey and choose a small production quantity.
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