The Dynamax Company is going to introduce one of three new products: a widget, a hummer, or a nimnot. The mar-ket conditions (favorable, stable, or unfavorable) will de-termine the profit or loss the company realizes, as shown in the following payoff table. a. Compute the expected value for each decision andselect the best one.b. Determine how much the firm would be willing to payto a market research firm to gain better informationabout future market conditions.c. Assume that probabilities cannot be assigned to futuremarket conditions, and determine the best decision using the maximax, maximin, minimax regret, and equal likeli-hood criteria. Market ConditionsFavorable Stable UnfavorableProduct 0.2 0.5 0.3Widget $160,000 $90,000 $50,000Hummer 70,000 40.000 20,000Nimnot 45,000 35,000 30.000
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.
The Dynamax Company is going to introduce one of three
new products: a widget, a hummer, or a nimnot. The mar-
ket conditions (favorable, stable, or unfavorable) will de-
termine the profit or loss the company realizes, as shown in
the following payoff table.
a. Compute the
select the best one.
b. Determine how much the firm would be willing to pay
to a market research firm to gain better information
about future market conditions.
c. Assume that probabilities cannot be assigned to future
market conditions, and determine the best decision using
the maximax, maximin, minimax regret, and equal likeli-
hood criteria.
Market Conditions
Favorable Stable Unfavorable
Product 0.2 0.5 0.3
Widget $160,000 $90,000 $50,000
Hummer 70,000 40.000 20,000
Nimnot 45,000 35,000 30.000
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