The Nitro Fertilizer Company is developing a newfertilizer. If Nitro markets the product and it is successful,the company will earn a $50,000 profit; if it is unsuccessful,the company will lose $35,000. In the past, similar productshave been successful 60% of the time. At a cost of $5,000,the effectiveness of the new fertilizer can be tested. If thetest result is favorable, there is an 80% chance that thefertilizer will be successful. If the test result is unfavorable,there is only a 30% chance that the fertilizer will besuccessful. There is a 60% chance of a favorable test resultand a 40% chance of an unfavorable test result. DetermineNitro’s optimal strategy. Also find EVSI and EVPI.
The Nitro Fertilizer Company is developing a newfertilizer. If Nitro markets the product and it is successful,the company will earn a $50,000 profit; if it is unsuccessful,the company will lose $35,000. In the past, similar productshave been successful 60% of the time. At a cost of $5,000,the effectiveness of the new fertilizer can be tested. If thetest result is favorable, there is an 80% chance that thefertilizer will be successful. If the test result is unfavorable,there is only a 30% chance that the fertilizer will besuccessful. There is a 60% chance of a favorable test resultand a 40% chance of an unfavorable test result. DetermineNitro’s optimal strategy. Also find EVSI and EVPI.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
The Nitro Fertilizer Company is developing a new
fertilizer. If Nitro markets the product and it is successful,
the company will earn a $50,000 profit; if it is unsuccessful,
the company will lose $35,000. In the past, similar products
have been successful 60% of the time. At a cost of $5,000,
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. Determine
Nitro’s optimal strategy. Also find EVSI and EVPI.
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