A Construction Company Must Decide on the Size of the Shopping

question 46

Essay

A construction company must decide on the size of the shopping mall, i.e. Large, Medium or Small, that has to be constructed in their acquired plot in the sub-urban area of Seattle. Due to the market conditions, the number of visitors to the mall will be High, Moderate, or Low. The level of response and the size of the mall will decide the return of investment from the mall. The profit payoff table for management (in millions of dollars) after 5 years is provided below.
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​ $$\begin{array}{l}                                    \text { Number of Visitors }\\\begin{array} { l c c c } \hline \text { Size of the Mall } & \text { High } & \text { Moderate } & \text { L ow } \\\hline \text { Large } & 25 & 15 & - 20 \\\text { Medium } & 20 & 12 & - 10 \\\text { Small } & 15 & 13 & 5\end{array}\end{array}$$ ​
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The probabilities are P(High) = 0.35, P(Moderate) = 0.40, and P(Low) = 0.25.
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the construction company should attempt to obtain a better estimate of the response.

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Definitions:

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