Project #44956 - Decision Tree - Analytics

You are a guitar maker and have invented a new lathe that can significantly enhance your capacity to make guitars.

Before determining whether to install your new lathe, you have the option to test the lathe to make sure it works well. The test will cost you $10,000; assume that this test is infallible (that is, there are no false positives and negatives). There is an 80% chance that the lathe will work well.

If you don't use the new lathe, you will produce 100 guitars per year (in other words, this is the status quo). If you use the new lathe and it works well, you will produce 130 guitars per year. If you use the lathe and it doesn’t work well, you will have to spend time attending to the lathe, resulting in only 60 guitars per year.

You sell every guitar you make and you earn a profit of $1,000 per guitar you sell. 

What does the decision tree look like for this problem? Should you test the new lathe? If you should test the lathe, what is the most you would pay for the test?

This answer requires a decision tree.

Subject Mathematics
Due By (Pacific Time) 10/26/2014 01:00 pm
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