Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions. The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions: Product Code Market Conditions Favorable P = 0.2 Neutral P = 0.7 Unfavorable P = 0.1 Wren $120,000 $70,000 ($30,000) Hawk $60,000 $40,000 $20,000 Nightingale $35,000 $30,000 $30,000 Maximus Steel is considering hiring a market research firm to do a survey to determine future market conditions. The results of the survey will indicate either positive or negative market conditions. There is a 0.60 probability of a positive report, given favorable conditions; a 0.30 probability of a positive report, given neutral conditions; and a .10 probability of a positive report, given unfavorable conditions. There is a .90 probability of a negative report, given unfavorable conditions; a .70 probability, given neutral conditions; and a .40 probability, given favorable conditions. 1) Develop a full decision tree for Maximus Steel. 2) Recommend the best strategy for the company, the expected value of the strategy, and the maximum amount the company should pay the market research firm for the survey results
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions.
The table below shows the
|
Product Code |
Market Conditions |
||
|
Favorable P = 0.2 |
Neutral P = 0.7 |
Unfavorable P = 0.1 |
|
|
Wren |
$120,000 |
$70,000 |
($30,000) |
|
Hawk |
$60,000 |
$40,000 |
$20,000 |
|
Nightingale |
$35,000 |
$30,000 |
$30,000 |
Maximus Steel is considering hiring a market research firm to do a survey to determine future market conditions. The results of the survey will indicate either positive or negative market conditions.
There is a 0.60 probability of a positive report, given favorable conditions; a 0.30 probability of a positive report, given neutral conditions; and a .10 probability of a positive report, given unfavorable conditions.
There is a .90 probability of a negative report, given unfavorable conditions; a .70 probability, given neutral conditions; and a .40 probability, given favorable conditions.
1) Develop a full decision tree for Maximus Steel.
2) Recommend the best strategy for the company, the
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