Name : Aliefia Apridha Surdadi

Student ID : 18111007

1. The managers of a food company are interested in determining the effect on their sales
of a competitor’s television advertisements. An analysis of sales records for the last 120
weeks gives the following results:

Level of Sales Total no of weeks

Low Medium High
Competitor advertised 32 14 18 64
Competitor did not advertise 21 12 23 56
Total 53 26 41 120

Level of Sales
Total no of weeks
Low Medium High
Competitor advertised 0,27 0,12 0,15 0,53
Competitor did not advertise 0,18 0,10 0,19 0,47
Total 0,44 0,22 0,34 120,00

Assuming that these past data are a reliable guide to the future, determine the probability
that next week:

a) The competitor will advertise.

→ 0,53
b) Sales will not be high.
→ 1 – p(high) = 1 – 0,34 = 0,66
c) Medium or high sales will be achieved.
→ P(Medium) + P(High Sales) – P(High sales and Medium)
0,22 + 0,33
d) Either the competitor will advertise or only low sales will be achieved.
→ P(Competitor will advertise)+P(Low Sales) – P(Competitor will advertise and low sales)
0,53 + 0,44 – 0,27 = 0,7
e) Either the competitor will not advertise or high sales will be achieved.
→ P(Comp not advertise) + P(High sales) – (Comp not advertise and high sales)
0,47 + 0,34 – 0,19 = 0,62
2. The risk of flooding in land adjacent to the River Nudd has recently increased. This is
because of a combination of high spring tides and the development by farmers of more
efficient drainage systems in the nearby hills, which means that, after heavy rainfall, water
enters the river more quickly. A tidal barrier is being constructed at the mouth of the river,
but the Hartland River Authority has to decide how to provide flood protection in the two
years before the barrier is completed. Flooding is only likely to occur during the spring
high-tide period and the height of the river at this time cannot be predicted with any
certainty. In the event of flooding occurring in any one year the Authority will have to pay
out compensation of about $2 million. Currently, the Authority is considering three
options.

• First, it could do nothing and hope that flooding will not occur in either of the next
two years. The river’s natural banks will stop flooding as long as the height of the water
is less than 9.5 feet. It is estimated that there is a probability of 0.37 that the height of
the river will exceed this figure in any one year.
• Second option, the Authority could erect a cheap temporary barrier to a height of 11
feet. This barrier would cost $0.9 million to erect and it is thought that there is a
probability of only 0.09 that the height of the river would exceed this barrier.
However, if the water did rise above the barrier in the first year, it is thought that there
is a 30% chance that the barrier would be damaged, rendering it totally ineffective for
the second year. The Authority would then have to decide whether to effect repairs
to the barrier at a cost of $0.7 million or whether to leave the river unprotected for
the second year.
• The third option would involve erecting a more expensive barrier. The fixed cost of
erecting this type of barrier would be $0.4 million and there would be an additional
cost of $0.1 million for each foot in the barrier’s height. For technical reasons, the
height of this barrier would be either 11 or 13 feet, and it is thought that there would
be no chance of the barrier being damaged if flooding did occur. The probability of the
river’s height exceeding the 13-foot barrier in any one year is estimated to be only
0.004.

a) Draw a decision tree to represent the River Authority’s problem.

Hardland
river

b) Determine the optimum policy for the Authority, assuming that their objective is to
minimize expected costs.