Procter, president of a food company, must decide whether to market a new breakfast drink which the R and D division has developed. A special meeting devoted to this topic yields the following information: The marketing vice-president has defined two possible outcomes for the success of this product; either the public will accept the product, or it will not. She believes that the product will be accepted with probability 0.1. The cost engineers believe that if the product is marketed and accepted, the company will net $100,000 yearly. If the product is rejected, however, the company will suffer a net loss of $20,000 yearly. If Procter decides not to market the product, her company will neither accrue more cost nor make any profit on this product. Procter always makes decisions based on the expected value of the outcomes. A. What is the best strategy in this case? B. Compute for EVPI.
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- 1. Procter, president of a food company, must decide whether to market a new breakfast drink which the R and D division has developed. A special meeting devoted to this topic yields the following information: ● The marketing vice-president has defined two possible outcomes for the success of this product; either the public will accept the product, or it will not. She believes that the product will be accepted with probability 0.1. ● The cost engineers believe that if the product is marketed and accepted, the company will net $100,000 yearly. If the product is rejected, however, the company will suffer a net loss of $20,000 yearly. If Procter decides not to market the product, her company will neither accrue more cost nor make any profit on this product. ● Procter always makes decisions based on the expected value of the outcomes.In 1996, McDonald’s (MD) launched Campaign 55, reducing the prices ofits “flagship” sandwiches with the objective of regaining market share. Beforethe launch, suppose MD’s management envisioned two possible outcomes: astrong customer response or a weak response. Industry experts were notvery optimistic about the campaign. They assessed the probability of a strong response to be .40. MD predicted an expected profit of $50 million if theresponse proved to be strong. If the immediate customer response was weak,management believed that all was not lost. If MD could persuade themajority of its franchisees to back and help fund the campaign, the resultingprofit would be $20 million. However, if the majority rose up against thecampaign, the red ink would fly, and McDonald’s profit would be -$100million. MD considered these two outcomes to be equally likely.a. Given these assessments, construct a decision tree to determine MD’sexpected-profit-maximizing course of action.b. Suppose that MD has…Problem 1) The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product and it is successful, then the company will earn a $50,000 profit; if it is unsuccessful, the company will lose $50,000. In that past, similar products have been successful 55% of the time. At a cost of $10,000, the effectiveness of the new fertilizer can be tested. If the test result is favorable, there is an 80% chance that the fertilizer will be successful. If the test result is unfavorable, there is only a 30% chance that the fertilizer will be successful. There is a 60% chance of a favorable test result and a 40% chance of an unfavorable test result. a) Construct a decision tree to determine Nitro's optimal strategy b) Find the EVSI and EVPI I need solution of part (b) only
- The White Fish company is launching its new food for sale in supermarkets throughout Illinois. The sales department is convinced that its spicy fish dip will be a great success. The marketing department is considering an intensive advertising campaign. The advertising campaign will cost $1,900,000 and if successful (70% chance) produce $9,600,000 in added revenue. If the campaign is less successful (30% chance), the added revenue is estimated at only $4.200,000. If no advertising is used, the revenue is estimated at $6,500,000 if customers are receptive (with probability 0.75) and $3.200,000 with probability 0.25 if they are not receptive. a. Draw the associated decision tree. b. Roll Back Tree: Should White Fish invest in an intensive advertising campaign? c. Perform sensitivity analysis on probability of successful advertising campaign, which is now 0.7. Detemine the range of the probability of success for which the current decision is still the best choice. d. Perform sensitivity…1- HIGHLINE FINANCIAL SERVICES, LTD. CASE Financial Services provides three categories of service to or promotion, and competition doesn't change, predict demand dients. Managing partner Freddie Mack is getting ready to pre- for the services the company offers for the next four quarters: 2-Examine the demand that this company has experienced for the three categories of service it offers over the preceding two years. Assuming nothing changes in terms of advertising or promotion , and competition doesn't change , predict-demand for the services the company offers for the next four quarters . Note that there are not enough data to develop seasonal relatives. Nonetheless , you should be able to make reasonably good , approximate , intuitive estimates of demand. What general observations can you make regarding demand ? Should Freddie have any concerns ? Explain.A company is planning on launching a new product. It was thinking of launching in June of next year, but it believes that a rival is also considering launching a similar product around that time. The company is considering bringing the launch forward to the end of this year. This will cost an extra $3M to carry out and the company believes it will have a 0.8 probability of beating the rival to the market. If, however, they wait until June, the probability of beating the rival falls to 0.2. To make the decision easier, the company assumes that sales will be either high, medium or low. If the company beats its rival, the probability of high sales is 0.6, the probability of medium sales is 0.25, and the probability of low sales is 0.15. If it doesn’t beat its rival, the probability of high sales falls to 0.35, medium sales rises to 0.45, and low sales rises to 0.2. The financial impacts are that high sales would be worth $9M, medium would be worth $5M and low, $1M. What’s the optimal…
- A company is planning on launching a new product. It was thinking of launching in June of next year, but it believes that a rival is also considering launching a similar product around that time. The company is considering bringing the launch forward to the end of this year. This will cost an extra $3M to carry out and the company believes it will have a 0.8 probability of beating the rival to the market. If, however, they wait until June, the probability of beating the rival falls to 0.2. To make the decision easier, the company assumes that sales will be either high, medium or low. If the company launches before its rival, the probability of high sales is 0.6, the probability of medium sales is 0.25, and the probability of low sales is 0.15. If it launches after its rival, the probability of high sales falls to 0.35, medium sales rises to 0.45, and low sales rises to 0.2. The financial impacts are that high sales would be worth $9M, medium would be worth $5M and low, $1M. Using…Wired & Plugged specializes in manufacturing modern electronic components. It also builds equipment that produces the components. The marketing and production directors advised the president about a proposed manufacturing facility in the form of a payoff table as shown. Decision Profits($) Strong Marked Fair Market Poor Market Large-sized facility Medium-sized facility Small- sized facility No facility 450,000 2500,000 350,000 0 220,000 150,000 150,000 0 -310,000 -250,000 -80,000 0 What decision should be made using the LaPlace criterion?3. The manager for a manufacturing company must recommend whether to construct a large plant, construct a small plant or do nothing. He estimates the long-run profits in $ as follows: State of Nature Alternative Good Average Poor Market($) Market ($) Market ($) Construct a 100,000 35,000 -60,000 large plant Construct a 75,000 25,000 -40,000 small plant Do nothing -5,000 0 0 Probability 25% 50% 25% Solve using: A. Expected Opportunity Loss B. Expected Value of Perfect Information
- A. A company wants to produce a souvenir with a marketing life of six months. Uncertainty surrounds the likely sales volume as well as the fixed costs of the venture as shown below: Sales units Probability Contrn. /unit Probability Fixed cost K7 K5 100 000 0.3 80 000 0.6 60 000 0.1 1.0 0.5 0.5 1.0 Determine the expected value of the contribution K400 000 K450 000 K500 000 Probability 0.2 0.5 0.3 1.0The number of people visiting the hospital emergency room for chest pains increased as the stock market dropped in 2008 & 2009. The drop in the stock market is probably partly responsible for this increase. Two Things Being Correlated (in the premises) : How They're Purportedly Correlated: Conclusion Argued For (in the conclusion) : Any Plausible Alternate Explanations? (yes or no) : If so, what? (spurious coincidence, common cause, reversed) : Explain this Alternate Explanation: Overall Quality of Argument (good or bad) :In the environment of increased competition, a fitness club executive is considering the purchase of additional equipment. His alternatives, outcomes, and payoffs (profits) are shown in the following table: (a). If the executive is an optimistic decision maker, which alternative will he likely choose? (b). if the executive is a pessimistic decision maker, which alternative will he likely choose? (c). Market research suggests the chance of a favorable market for fitness clubs is 76%. If the executive uses this analysis, which alternative will he likely choose? I have provided the data table for the problem.