A Regional Fast?food Restaurant Is Considering an Expansion Program A Using Decision Tree Analysis, What Is the Expected Value

question 28

Essay

A regional fast?food restaurant is considering an expansion program. The major factor influencing the success of such a program is the future level of interest rates. It is estimated that there is a 20 per-cent chance that interest rates will increase by 2 percentage points, a 50 percent chance that they will remain the same, and a 30 percent chance that they will decrease by 2 percentage points. The alternatives they are considering and possible payoffs are shown in the following table:
$\begin{array}{lcc}&\text { Rates Up } & \text { Rates } & \text { Rates Dow1 } \\&2 \text { Percent } & \text { Unchanged }&2 \text { Percent } \\\text { Build } 50 \text { new places } & -\$ 200,000 & \$ 50,000&\$150,000 \\\text { Build } 25 \text { new places } & -\$ 115,000 & \$ 26,000 &\$80,000\\\text { Do nothing } & -\$ 70,000 & 0&\$5,000\end{array}$
a. Using decision tree analysis, what is the expected value (EV) for building 50 new restaurants?
b. Using decision tree analysis, what is the expected value (EV) for building 25 new restaurants?
c. What is the action and corresponding expected value EV for this overall decision tree problem?

Analyze the implications of externalities on market failure and the role of government in correcting these failures.

Understand the concept of marginal social cost and marginal social benefit in the context of pollution and externalities.

Comprehend the challenges associated with empirically measuring and regulating externalities.

Examine the significance of permit trading in pollution control and its efficiency implications.

---

Definitions:

Spring Length

The measurement of a spring from end to end when it is not under any force or compression.

Spring Flexes

The action of spring materials bending or flexing under load, a property utilized in suspension systems to absorb shocks.

Reversible Sleeve

A garment or machinery component designed to be used in either direction, enabling versatility or reversible functionality.

Air Spring

A device using contained air under pressure to support a weight or absorb shock, often used in vehicle suspension systems.