Huntz Food Products is attempting to decide if it shouldintroduce a new line of salad dressings called SpecialChoices. The company can test market the salad dressingsin selected geographic areas or bypass the test market and introduce the product nationally. The cost of the test mar-ket is $150,000. If the company conducts the test market, it must wait to see the results before deciding whether or notto introduce the salad dressings nationally. The probability of a positive test market result is estimated to be 0.6. Alter-natively, the company cannot conduct the test market and make the decision to introduce the dressings or not. If thesalad dressings are introduced nationally and are a success,the company estimates it will realize an annual profit of$1,600,000 while if the dressings fail it will incur a loss of$700,000. The company believes the probability of successfor the salad dressings is 0.50 if it is introduced without thetest market. If the company does conduct the test market and it is positive, the probability of successfully introduc-ing the salad dressings increases to 0.8. If the test market is negative and the company introduces the salad dressingsanyway, the probability of success drops to 0.30.Using decision-tree analysis, determine if the companyshould conduct the test market.
Huntz Food Products is attempting to decide if it should
introduce a new line of salad dressings called Special
Choices. The company can test market the salad dressings
in selected geographic areas or bypass the test market and
introduce the product nationally. The cost of the test mar-
ket is $150,000. If the company conducts the test market, it
must wait to see the results before deciding whether or not
to introduce the salad dressings nationally. The probability
of a positive test market result is estimated to be 0.6. Alter-
natively, the company cannot conduct the test market and
make the decision to introduce the dressings or not. If the
salad dressings are introduced nationally and are a success,
the company estimates it will realize an annual profit of
$1,600,000 while if the dressings fail it will incur a loss of
$700,000. The company believes the probability of success
for the salad dressings is 0.50 if it is introduced without the
test market. If the company does conduct the test market
and it is positive, the probability of successfully introduc-
ing the salad dressings increases to 0.8. If the test market is
negative and the company introduces the salad dressings
anyway, the probability of success drops to 0.30.
Using decision-tree analysis, determine if the company
should conduct the test market.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
