Steve is the director of operations for a diamond company. The company is considering whether to...

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Steve is the director of operations for a diamond company. Thecompany is considering whether to launch a new product? line, whichwill require building a new facility. The research required toproduce the new product has not been proven to work in a?full-scale operation. If Steve decides to build the new facilityand the process is? successful, the company will earn a profit of720,000. If the process is? unsuccessful, his company will realizea loss of 900,000. Steve estimates that the probability of the?full-scale process succeeding is 62%. Steve has the option ofconstructing a pilot plant for 59,000 to test the new processbefore deciding to build the? full-scale facility. He estimatesthere is a 54% probability that the pilot plant will provesuccessful. If the pilot plant succeeds he thinks the chance of thefull scale facility succeeding is 87%. if the pilot plant fails, hethinks the chance of the full scale facility succeeding is only35%. Complete parts a, b, and c below.
A.) Construct a decision tree with all of the known informationlabeled
B.) Advise what to do ( should he build the pilot plantfirst?)
C.) what is the most they should pay to construct the pilotplant?

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4.2 Ratings (503 Votes)

Here we are given with the information that to launch newproduct system will require new facilityWe are given withPNew facility works 062 and PNew facility fails 038P Pilot plant See Answer

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