Draw a decision tree and advise which course of action generates the greatest expected profit. ii. What is the maximum amount that should be paid for market research to determine with certainty whether demand will be strong or weak?
A company is considering a new product launch. There is a 0.6 chance that
demand for the product will be strong and a 0.4 chance that demand will be
weak. Two strategies for the launch are possible: 1 has high promotion costs and
a net
proves weak a net cash outflow of (K30 000) will result. Strategy 2 has low
promotion costs and if demand is strong will generate a
000 but with weak demand a net cash inflow of K20 000.
i. Draw a decision tree and advise which course of action generates the
greatest expected profit.
ii. What is the maximum amount that should be paid for
determine with certainty whether demand will be strong or weak?
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