DECISION TREE:
Chadoperated an automobile sales business. A major dealer in town offered the following deal to Chad.
Under this deal (Refer table), Chad could take one used car at a time from the dealer and try to sell it. If he sold it, he could take another. There were three cars they wanted Chadto try to sell. The Dealer concluded the offer as follows "we have not dealt with you before so we plan to proceed cautiously: I'm sure you understand. If you accept this deal, you must take the compact first. If you sell the compact, then you can choose either of the other two, or you can end the deal. If you sell the second car, then you can take the third if you wish." Please only enter an integer if a numerical answer is required.
|
Car
|
Commission on Sale
|
Selling cost
|
Probability of Sale
|
|
Compact
|
$900
|
$600
|
3/4
|
|
Standard
|
$1500
|
$200
|
2/3
|
|
Luxury
|
$3000
|
$600
|
1/2
|
Question 1: Expected return on selling the Compact car is
Question 2: Expected profit from selling the Compact car is
Question 3: Expected return from selling the Standard car is
Question 4: Expected profit from selling the Standard car is
Question 5: Expected profit from selling the Luxury car is
Question 6: He should take this offer because his expected return is positive.
True
False
Question 7: After selling the first Compact car, Chad should choose to sell the __________ car first.
A. Standard
B. Luxury