A new product has the following profit projections and associated probabilities: Profit Probability $150,000 .10 $100,000 .25 $50,000 .20 $0 .15 -$50,00 .20 -$100,000 .10 a) use the expected value approach to decide whether to market the new product b) because of the high dollar values involved, especially the possibility of a $100,000 loss, the marketing vice president has expressed some concern about the use of the expected value approach. As a consequence, if a utility analysis is performed, what is the appropriate lottery? c) assume that the following indifference probabilities are assigned. Profit indifference Probability (p) $100,000 .95 $50,000 .70 $0 .50 -$50,000 .25 Do the utilities reflect the behavior of a risk-taker or a risk avoider d) use expected utility to make a recommended decision e) should the decision-maker feel comfortable with the final decision recommended by the analysis
A new product has the following profit projections and associated probabilities:
Profit
$150,000 .10
$100,000 .25
$50,000 .20
$0 .15
-$50,00 .20
-$100,000 .10
a) use the
b) because of the high dollar values involved, especially the possibility of a $100,000 loss, the marketing vice president has expressed some concern about the use of the expected value approach. As a consequence, if a utility analysis is performed, what is the appropriate lottery?
c) assume that the following indifference probabilities are assigned.
Profit indifference Probability (p)
$100,000 .95
$50,000 .70
$0 .50
-$50,000 .25
Do the utilities reflect the behavior of a risk-taker or a risk avoider
d) use expected utility to make a recommended decision
e) should the decision-maker feel comfortable with the final decision recommended by the analysis
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