A Construction Company Must Decide on the Size of the Shopping

question 60

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.

The probabilities for the state of nature are P(High) = 0.35, P(Moderate) = 0.40, and P(Low) = 0.25.
a. A test market study of the potential response for the mall in that area is expected to report either a favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows:
P(F|High) = 0.35; P(U|High) = 0.65
P(F|Moderate) = 0.45; P(U|Moderate) = 0.55
P(F|Low) = 0.20; P(U|Low) = 0.80
What is the probability that the market research report will be favorable?
b. Show the decision tree for this problem.

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Definitions:

Urinary Bladder

The urinary bladder is a hollow muscular organ that collects and stores urine from the kidneys before disposal by urination.

Secondary Palate

Roof of the mouth in the early embryo that gives rise to the hard and the soft palates.

Cleft Palate

Failure of the embryonic palate to fuse along the midline, resulting in an opening through the roof of the mouth.

Central Nervous System

The complex network of neurons and supporting cells that includes the brain and spinal cord, vital for controlling body functions.