Make a decision tree for the problem


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Q: The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store. The demand will be weak, fair, or strong; probabilities arc 0.25, 0.30, and 0.45, respectively. If the company installs a small booth that sells only coffee, the associated payoffs are -$25,000; 25,000; and $100,000 for weak, fair, and strong demand. If the company chooses an expanded facility that offers sandwiches and breakfast foods, it must build a kitchen and rent additional space. The payoffs for an expanded facility arc -$200,000, -$25,000, and $500,000.

a. Draw a decision tree for this problem.

b. What should management do to achieve the highest expected payoff?

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Operation Management: Make a decision tree for the problem
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