Question

Mark has decided to open his own bookstore. He is considering two different sites to open his store and he knows that the choice of site will depend on customer demand. After analyzing the two sites, Mark has developed the following payoff table showing the profit (in $1000s). Mark believes there is a 50% chance that demand will be high.

	high demand	low demand
site 1	50	-10
site 2	80	-30

Before making his decision, Mark can also conduct a research study that will cost $5,000. He knows that the probability the study will be favourable given high demand is 96% and the probability the study will be favourable given low demand is 24%.

• What decision should Mark make? Select the correct decision from options #1 to #6.
• What is the maximum amount that Mark should pay for the study? Select the correct answer from options #7 to #10.
• What is the efficiency of the sample information? Select the correct answer from options #11 to #14.

1) Do not conduct the study and select Site 1.
	2) Do not conduct the study and select Site 2.
	3) Conduct the study. If the study is favourable, select Site 1. If the study is unfavourable, select Site 1.
	4) Conduct the study. If the study is favourable, select Site 1. If the study is unfavourable, select Site 2.
	5) Conduct the study. If the study is favourable, select Site 2. If the study is unfavourable, select Site 1.
	6) Conduct the study. If the study is favourable, select Site 2. If the study is unfavourable, select Site 2.
	7) $5,000
	8) $7,000
	9) $10,000
	10) $27,000
	11) 70%
	12) 27%
	13) 50%
	14) 20%

Answer 1

As given in the question that the probability the study will be favourable given high demand is 96% and the probability the study will be favourable given low demand is 24%

So For the first question select option

2) Do not conduct the study and select site 2

For the second question select option

7) $5,000

For the third question select option

11) 70%