The dean of the School of Business at Northern Connecticut State University has been approached by a government agency in Hunan Province, China, to provide MBA training to a group of 30 midlevel officials. The dean is considering submitting a bid of $225,000, $250,000, or $300,000 for providing this program. If the bid is $225,000, the dean estimates there is a 90% change that the school will get the contract. This probability decreases to 0.6 if the bid is $250,000 and 0.2 if the bid is $300,000.
Materials are expected to cost an average of $1,000 per participant. The dean estimates that she will have to pay total faculty salaries of either &180,000 or $220,000. There is a 40% chance that the faculty union will accept $180,000 and a 60% chance that the union will hold out for $220,000.
Using a decision tree approach, determine the dean's optimal strategy.
This solution shows how to use a decision tree approach to clearly determines the dean's optimal strategy. It provides the sample decision tree in Excel.