Colonial Motors Cm Trying Determine Size Manufacturing Plant Build New Car Developing Two Q30963746

Colonial Motors (CM) is trying to determine what size ofmanufacturing plant to build for a new car it is developing. Onlytwo plant sizes are under consideration: large or small.Before making the plant size decision, CMis trying to decide whether or not to do a market survey to assessconsumer attitudes about the new car.

Without the survey, the firm will have to make the size decisionand then wait to see whether demand is high or low. They can onlyguess that there would be a 50% chance of high demand. If a largeplant is built and demand is high the expected payoff is $150, and$70 if demand is low. If a small plant is built, payoffs would be$110 if demand is high and $90 if demand is low.

If the survey is done, the results of the survey would indicateeither a favorable or unfavorable attitude about the new car. CMestimates the probability of a favorable response is 0.67 and theprobability of an unfavorable response is 0.33.   Afterthe survey response is received, the firm will then make thedecision to build a large plant or a small plant. Ultimately thepayoff will again be determined by demand which could be eitherhigh or low.

If the survey response is favorable, the probability of highdemand is 0.9 and the probability of low demand 0.1. If theresponse is favorable and the firm builds a large plant, theultimate payoffs will be $150 if demand is high and $70 if demandis low. If the firm builds a small plant, the payoffs will be $110if demand is high and $90 if demand is low.

With an unfavorable survey response, the probability of highdemand would be 0.3, and the probability of low demand 0.7. If thefirm builds a large plant the ultimate payoffs will be $150 ifdemand is high and $70 if demand is low. If the firm builds a smallplant, the payoffs will be $110 if demand is high and $90 if demandis low.

The survey is expected to cost $10. The cost can be incorporatedinto the tree by subtracting it from the appropriate payoffs beforethe tree is rolled back (see text example Larger Decision Treefor Thompson Lumber) or by subtracting it at the point wherethe decision to do the survey is.

Draw a decision tree for this problem, solve it and report yourrecommended course of action.

Really just need the decision tree drawn. I can’t figure out howto do it based off of the instruction she provided us.