Question: The dealership in problem below is considering hiring a petroleum analyst to determine the future availability of gasoline. The analyst will report that either a shortage or surplus will occur. The probability that the analyst will indicate a shortage given that a shortage actually occurs is .90; the probability that the analyst will indicate a surplus given that a surplus actually occurs is .70.

? Provide EVSI, EVPI. Determine decision strategy that the dealership should follow, the expected value of the strategy and maximum amount they should pay for the analyst’s services.

Compute efficiency of the sample information for the car dealership

Dealership Problem

Determine the type of dealership that should be purchased depending on how much gasoline is going to be available the next few years. Compute the expected values based on the table below:

Gasoline Availability

Dealership Shortage .6 Surplus .4

Compact Cars $300,000 $150,000

Full-sized cars -100,000 600,000

Trucks 120,000 170,000

Construct a decision tree for the decision situation described in the dealership problem above and indicate the best decision. .