A Paint Company Has Three Sources for Buying Bright Red

question 16

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:
$\begin{array}{c}\text { Probabilities }\\\begin{array}{lccc}&\underline{\text { Wet}}&\underline{\text { Dry }}&\underline{\text { Normal }}\\\text { Vietnam } & .5 & .2 & .3 \\\text { Taiwan } & .6 & .3 & .1 \\\text { Thailand } & 4 & 4 & 2\end{array}\end{array}$ $\begin{array}{c}\text { Price/Pound \$) }\\\begin{array}{lccc}&\underline{\text { Wet}}&\underline{\text { Dry }}&\underline{\text { Normal }}\\\text { Vietnam } & .95 & 1.10 & 1.00 \\\text { Taiwan } & .85 & 1.20 & .98 \\\text { Thailand } & 90 & 1.15 & 1.05\end{array}\end{array}$
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:

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate measure of the economic value of goods and services produced over a specific period.

Nominal GDP

The market value of all final goods and services produced within a country in a given period, measured using current prices without adjustment for inflation.

Price Inflation

The pace at which the overall price level of goods and services increases, leading to a decline in purchasing power.

Price Deflation

A decrease in the general price level of goods and services over a period.