Operations Management

timer Asked: Feb 8th, 2015

Question description

Play now?  Play later?

You can become a millionaire!  That's what the junk mail said.  But then there was the fine print:

If you act before midnight tonight, then here are you chances: 0.1% that you receive $1,000,000;

75% that you get nothing, otherwise you must PAY $5000.

But wait, there's more!  If you don't win the million AND you don't have to pay on your first attempt then

you can choose to play one more time.

If you do, then we 20X your probability of winning big - yes, you will hava a 2% chance of 

receiving $100,000 and 60% chance of winning $7500, but must pay $10,000 otherwise.

What is your expected outcome for attempting this venture?  Solve this problem using

a decision tree and clearly show all calculations and the expected value at each node.

Answer these questions:

1) should you play at all? (5%) And if so, what is my expected (net) monitary value? (10%)

2) If you play and don't win at all on the first try (but don't lose money), should you try again? (5%) Why? (5%)

3) clearly show the decision tree (40%) and expected net monitary value at each node (25%)

Tutor Answer

(Top Tutor) Studypool Tutor
School: Purdue University
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors