Consider the decision tree we constructed for IDEA in Session 1 of week 4. Assume that all of the data used in the example
Choose either Supplier S or Supplier P. Choosing no supplier would be worse.
Question 6
Consider the decision tree we constructed for IDEA in Session 1 of week 4. Assume that all of the data used in the example – including the 0.5 probability that the market is strong – remain the same as in Session 1, except for the fixed upfront cost charged by Supplier S. Suppose that, instead of a fixed upfront cost of 0€, Supplier S charges IDEA a fixed upfront cost of 175,000€.
Given Supplier S charges IDEA a fixed upfront cost of 175,000€, what is IDEA’s expected-value-maximizing decision?
Choose either Supplier S or Supplier P. Choosing no supplier would be worse.
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