OIDD Lumber Company is considering expanding their product line by manufacturing and marketing a new product, backyard storage sheds

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OIDD Lumber Company is considering expanding their product line by manufacturing and marketing a new product, backyard storage sheds. Part of the consideration involves the decision of how much capacity should be developed to produce this product. The alternatives are to build a large plant, build a small plant, or to not expand the product line at all. The expected profit that would be realized, of course, depends on the market for the product. The table below shows the estimates that have been made to support this decision.

 

	Favorable Market	Unfavorable Market
Large Plant	200,000	-180,000
Small Plant	100,000	-20,000
Do Nothing	0	0

 

Before launching this new product, the company has the option of conducting its own market research survey. Conducting the survey would cost $12,000. There is a 45% chance that the survey will yield positive results. If the results are positive, then there is a 78% chance of a favorable market. If they are negative, there is a 73% chance of an unfavorable market. If no survey is conducted, the estimate for a favorable market is 50%.

1. Construct a decision tree and use it to make a recommendation to the CEO regarding whether or not a survey should be conducted.
2. What is the cost of the survey that would make OIDD Lumber indifferent about conducting the survey?