John Smith Framing has noticed that a lot of customers would like to be able to

Question

John Smith Framing has noticed that a lot of customers would like to be able to print photographs to frame. But since the store does not have an art printer, customers have to get their photos printed elsewhere. The manager, John, is deciding between three possible printers, estimating their profitability based on what sorts of materials they could print and what the expected demand for those services is. Using the information below, create a decision tree for John Smith Framing and compute the expected value for each printer. Which printer should the framing store purchase?

Location Increasing demand (0.22) Steady (0.68) Falling (0.1) Magnaprint 430f $10,700 $3,540 $1,200 VistaVox md82 $8,650 $5,480 $3,410 ArtStock Pro 5 $15,450 $2,300 -$2,710

Explanation / Answer

Expected value of Magnaprint 430f = $10,700*0.22 + $3,540*0.68 + $1,200*0.1= $4,881.20

Expected value of VistaVox md82 = $8,650*0.22 + $5,480*0.68 + $3,410*0.1= $5,970.40

Expected value of ArtStock Pro 5 = $15,450*0.22 + $2,300*0.68 + ($2,710)*0.1= $4,692.00

According to expected value for each printer, the manager should select VistaVox md82

Location Increasing demand (0.22) Steady (0.68) Falling (0.1) Expected value Magnaprint 430f $10,700 $3,540 $1,200 $4,881.20 VistaVox md82 $8,650 $5,480 $3,410 $5,970.40 ArtStock Pro 5 $15,450 $2,300 ($2,710) $4,692.00

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