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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 0.50.20.3 Taiwan 0.60.30.1 Thailand 0.40.40?\begin{array}{llll}&&\text { Probabilities }\\&\text { Wet }&\text { Dry } &\text { Normal }\\\text { Vietnam } & 0.5 & 0.2 & 0.3 \\\text { Taiwan } & 0.6 & 0.3 & 0.1 \\\text { Thailand } & 0.4 & 0.4 & 0 ?\end{array}  Price/Pound ($)  Wet  Dry  Normal  Vietnam 0.951.101.00 Taiwan 0.851.20.98 Thailand 0.901.51.05\begin{array}{lccc}&&\text { Price/Pound (\$) }\\&\text { Wet }&\text { Dry } &\text { Normal }\\\text { Vietnam } & 0.95 & 1.10 & 1.00 \\\text { Taiwan } & 0.85 & 1.20 & .98 \\\text { Thailand } & 0.90 & 1.5 & 1.05\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) = 0.4(0.90) +...

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