10:07 AM3. The Miramar Company is going to introduce one of three new products: a widget,a hummer, or a nimnot. The market conditions (favorable, stable, or unfavorable)will determine the profit or loss the company realizes, as shown in the followingpayoff table:Market ConditionsFavorableStableUnfavorableProduct.2.7.1Widget$120,000$70,000$-30,00020,00030,000Hummer60,00040,000Nimnot35,00030,000a. Compute the expected value for each decision and select the best one.b. Develop the opportunity loss table and compute the expected opportunity loss foreach product.c. Determine how much the firm would be willing to pay to a market research firm togain better information about future market conditions.d. The Miramar Company is considering contracting with a market research firm to do asurvey to determine future market conditions. The results of the survey will indicateeither positive or negative market conditions. There is a 0.60 probability of a positivereport, given favorable conditions; a 0,30 probability of a positive report, given stableconditions; and a 0.10 probability of a positive report, given unfavorable conditions.There is a 0.90 probability of a negative report, given unfavorable conditions; a 0.70probability, given stable conditions; and a 0.40 probability, given favorableconditions. Using decision tree analysis and posterior probability tables, determinethe decision strategy the company should follow, the expected value of the strategy,and the maximum amount the company should pay the market research firm for thesurvey results.

It is the sum of all possible values of a variable multiplied by its probability of occurrence. We…

a. Compute the expected value for each decision and select the best one. b. Develop the opportunity loss table and compute the expected opportunity loss for each product. c. Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.

a. Compute the expected value for each decision and select the best one. b. Develop the opportunity loss table and compute the expected opportunity loss for each product. c. Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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