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A Paint Company Has Three Sources for Buying Bright Red

Question 41

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A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or Thailand. Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent upon the amount of rainfall during the growing season. The tables below show probabilities and prices for wet, dry and normal growing seasons:
 Probabilities  Wet Dry  Normal  Vietnam .5.2.3 Taiwan .6.3.1 Thailand 442\begin{array}{c}\text { Probabilities }\\\begin{array}{lccc}&\underline{\text { Wet}}&\underline{\text { Dry }}&\underline{\text { Normal }}\\\text { Vietnam } & .5 & .2 & .3 \\\text { Taiwan } & .6 & .3 & .1 \\\text { Thailand } & 4 & 4 & 2\end{array}\end{array}  Price/Pound $)  Wet Dry  Normal  Vietnam .951.101.00 Taiwan .851.20.98 Thailand 901.151.05\begin{array}{c}\text { Price/Pound \$) }\\\begin{array}{lccc}&\underline{\text { Wet}}&\underline{\text { Dry }}&\underline{\text { Normal }}\\\text { Vietnam } & .95 & 1.10 & 1.00 \\\text { Taiwan } & .85 & 1.20 & .98 \\\text { Thailand } & 90 & 1.15 & 1.05\end{array}\end{array}
a. Using decision tree analysis, what is the expected (value price) for Thailand?
b. What country should the company select and what is the expected (value price) associated with it?

Correct Answer:

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a. EV (Thailand) = .4(.90) + .4(1.15) + ...

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