Question: Elgard, Inc. is considering expanding the capacity of their store. Success of the decision depends on whether their customers accept the new line of products Elgard is evaluating. If the store expands and demand for the new line is high, the payoff will be $325, but if the demand is low the payoff will only be $35. If the store does not expand and demand for the new line is high, the payoff will be $150, but if demand is low the payoff will be $100.
The payoff table below summarizes the information given above.
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States of Nature
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Alternatives
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High demand
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Low demand
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Expand
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325
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35
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Do not expand
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150
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100
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Perform sensitivity analysis for this problem:
a. Create a graph to show how the expected values of the two options change as the probability of high demand changes from 0 to 1. (Create only ONE graph.)
b. Interpret your graph.