A communication-electronics firm is deciding whether to manufacture a new communications device. The decision to produce the device means an investment of $3M, and the demand for such a device is uncertain. Estimates of probability for the continuous randome variable, demand, are shown below:
P(Demand<$6M) = 0.9 (High)
P(Demand<$4M) = 0.5 (Med)
P(Demand<$1M) = 0.1 (Low)
A. Draw a decision tree for the problem. Compute the expected value of each alternative. Should the firm make the investment?
B. Determine the values of perfect information and control for demand.
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