Decision Tree Problem

Decision Tree Problem

Jessica has been awarded a contract to produce dresses of her design by a small retail chain. The chain will take delivery of 50 dresses right now. But future releases will depend on actual sales.

The chain has provided a set of estimates of sales for the upcoming year:

Demand # of Dresses * Probability
Low 1000 30%
Medium 2000 40%
High 3000 30%

* includes the 50 already released.

Jessica has 3 options:

A: make the dresses herself, no fixed costs, profit will be $10.00 per dress.

B: buy equipment and hire part time help; equipment costs will be $5,000, profit per dress will be $15.00.

C: contract out to a sewing shop, up front is a one time cost of $10,000, profit per dress will be $20.00.

Question: which option should Jessica select?

Payout table and Decision Tree are required.

Hint: Decision tree will have 3 major branches and each major branch will have 3 branches.


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