The Jamis Corporation is involved with waste management Duri

The Jamis Corporation is involved with waste management. During the past 10 years it has become one of the largest waste disposal companies in the Midwest, serving primarily Wisconsin, Illinois, and Michigan. Bob Jamis, president of the company, is considering the possibility of establishing a waste treatment plant in Mississippi. From past experience, Bob believes that a small plant in Northern Mississippi would yield a $500,000 profit regardless of the market for the facility. The success of a medium-sized waste treatment plant would depend on the market. With low demand for waste treatment, Bob expects a $200,000 return. A medium demand would yield a $700,000 return in Bob\'s estimation, and a high demand would yield $800,000. Although a large facility is much riskier, the potential return is much greater. With a high demand for waste treatment in Mississippi, the large facility should return a million dollars. With medium demand, the large facility should return only $400,000. Bob estimates that the large facility would be a big loser if there were low demand for waste treatment. He estimates that he would lose approximately $200,000 with a large treatment facility if the demand was indeed low. Looking at the economic conditions for the upper part of the state of Mississippi and using his experience in the field, Bob estimates that the probability of a low demand for treatment plants is 0.15. The probability for a medium-demand facility is approx. 0.40, and the probability for a high-demand facility is 0.45.

Because of the large potential investment and the possibility of a loss, Bob has decided to hire a market research team that is based in Jackson, Mississippi. The team will perform a survey to get a better feeling for the probability of a low, medium, or high demand for a waste treatment facility. The cost of the survey is $50,000. To help Bob determine whether to go ahead with the survey, the marketing research firm has provided Bob with the following information:

Possible Outcome Low Survey Results Medium Survey Results High Survey Results

Low Demand 0.7 0.2 0.1

Medium Demand 0.4 0.5 0.1

High Demand 0.1 0.3 0.6

As you see, the survey could result in three possible outcomes. Low survey results mean that a low demand is likely. In a similar fashion, medium survey results or high survey results would mean a medium or high demand. What should Bob do?

Solution

Possible Outcome Low Survey Results Medium Survey Results High Survey Results

Low Demand 0.7 0.2 0.1

Medium Demand 0.4 0.5 0.1

High Demand 0.1 0.3 0.6

according to this data bob should go for medium as it has very low, low demand outcome.

and the medium demand is high among all. so it will take care of the burden of high demand and even the high demand is second highest,

so if we will take the mean of both the return from medium to high then it will be high among all three.