The Getz Products Company is investigating the possibility ofproducing and marketing backyard storage sheds. Undertaking thisproject would require the construction of either a large or smallmanufacturing plant. The market for the product produced – storagesheds - could be either favorable or unfavorable. Getz, of course,has the option of not developing the product at all.

With a favorable market, a large facility would give Getz a netprofit of $200,000. If the market is unfavorable, a $180,000 netloss would occur. A small plant would result in a net profit of$100,000 in a favorable market, but a net loss of $20,000 would beencountered if the market was unfavorable.

Getz Products’ POM manager believes that the probability of afavorable market is the same as that of an unfavorable market(.50/.50)

Suppose that Getz could have their marketing department performa survey at a cost of $10,000. Getz would then use the results ofthe survey to decide whether to build a large plant or a smallplant, or not to build at all

If the company decides not to conduct the survey, theprobabilities and payoffs given previously apply.

If the company decides to conduct the survey, it will result ineither a favorable or unfavorable forecast.

If the forecast is favorable, the probability of the marketactually being favorable is 0.78, the probability of the marketbeing unfavorable is 0.22. If a large plant is then built, thefinal result would be a net profit of $190,000 with a favorablemarket and a net loss of $190,000 with an unfavorable market. If asmall plant is built, the final result would be a net profit of$90,000 with a favorable market and a net loss of $30,000 with anunfavorable market. If no plant is built the net loss will be$10,000 (the cost of the forecast survey).

If the forecast is unfavorable, the probability of the marketactually being favorable is 0.27, the probability of the marketbeing unfavorable is 0.73. The final results would be the same asabove: if a large plant is then built, the final result would be anet profit of $190,000 with a favorable market and a net loss of$190,000 with an unfavorable market. If a small plant is built, thefinal result would be a net profit of $90,000 with a favorablemarket and a net loss of $30,000 with an unfavorable market. If noplant is built the net loss will be $10,000 (the cost of theforecast survey).

We estimate the probability of a favorable survey to be 0.45 andthe probability of an unfavorable survey to be 0.55.

Draw and Solve a Decision Tree to determine the best plan forGetz.