Operation mgmt: decision making
A used car dealer has just purchased a year-old sports car for $10,000. The dealer can wholesale the car now for $10,500, but the wholesale value of the car will decline $200 per month as the car gets older. After quite a bit of experience with similar cars, the dealer believes that advertising the car for $12,000 will result in a sale at a price of $11,500, if the right buyer comes along. The probability that the right buyer will come along in the first month is 0.4; if it is not sold then, the probability is 0.3 for the second month. If it is not sold in the second month, the probability the right buyer will come along in the third month is 0.2. If it is not sold in the third month, the probability the right buyer will come along in the fourth month is 0.1. If it is not sold during the fourth month, it will be sold at the wholesale for (($10,500-4 x $200) + $9,700). Advertising costs $50 per month. What should the dealer do? Make sure that your decision rule explains what should be done at the end of each month that the car has not been sold. Just need a formula for decision tree approach
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