A Paint Company Has Three Sources for Buying Bright Red

question 9

Essay

A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or Thailand. Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent upon the amount of rainfall during the growing season. The tables below show probabilities and prices for wet, dry, and normal growing seasons:
$\begin{array}{llll}&&\text { Probabilities }\\&\text { Wet }&\text { Dry } &\text { Normal }\\\text { Vietnam } & 0.5 & 0.2 & 0.3 \\\text { Taiwan } & 0.6 & 0.3 & 0.1 \\\text { Thailand } & 0.4 & 0.4 & 0 ?\end{array}$ $\begin{array}{lccc}&&\text { Price/Pound (\$) }\\&\text { Wet }&\text { Dry } &\text { Normal }\\\text { Vietnam } & 0.95 & 1.10 & 1.00 \\\text { Taiwan } & 0.85 & 1.20 & .98 \\\text { Thailand } & 0.90 & 1.5 & 1.05\end{array}$
a. Using decision tree analysis, what is the expected value (price) for Thailand?
b. What country should the company select, and what is the expected value (price) associated with it?

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Definitions:

Squared Deviations

The squared differences between each data point and the mean, used in statistical analysis to measure variance.

Standard Deviation

A measure of the dispersion or spread of a set of data points relative to its mean, used in statistics to quantify variability.

Efficient Market

A market theory suggesting that asset prices fully reflect all available information, making it impossible to consistently achieve higher returns.

Prices

The sum of money anticipated, needed, or provided as compensation for something.