The research department at a manufacturing company has developed a new process that it believes will result in an improved product. Management must decide whether to go ahead and market the new product. The new product may or may not be better than the old one. If the new product is better and the company decides to market it, sales should increase by $60,000. If it is not better and they replace the old product with the new product on the market, they will lose $22,000 to competitors. If they decide not to market the new product, they will lose a total of $30,000 if it is better and just research costs of $20,000 if it is not. Complete parts (a) and (b) below. (a) Prepare a payoff matrix. (Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.) (b) If management believes that the probability that the new product is better is 0.5, find the expected profits under each strategy and determine the best action. Select the correct answer below and fill in the answer boxes to complete your choice. (Type integers or decimals.) O A. The expected profits are $ if they market the product and S if they do not. They should market the product because they will lose less if they do. O B. The expected profits are $ if they market the product and S if they do not. They should market the product because they will earn more if they do so. O C. The expected profits are $ if they market the product and S if they do not. They should not market the product because they will earn more if they do not. O D. The expected profits are $ if they market the product and S if they do not. They should not market the product because they will lose less if they do not.
The research department at a manufacturing company has developed a new process that it believes will result in an improved product. Management must decide whether to go ahead and market the new product. The new product may or may not be better than the old one. If the new product is better and the company decides to market it, sales should increase by $60,000. If it is not better and they replace the old product with the new product on the market, they will lose $22,000 to competitors. If they decide not to market the new product, they will lose a total of $30,000 if it is better and just research costs of $20,000 if it is not. Complete parts (a) and (b) below. (a) Prepare a payoff matrix. (Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.) (b) If management believes that the probability that the new product is better is 0.5, find the expected profits under each strategy and determine the best action. Select the correct answer below and fill in the answer boxes to complete your choice. (Type integers or decimals.) O A. The expected profits are $ if they market the product and S if they do not. They should market the product because they will lose less if they do. O B. The expected profits are $ if they market the product and S if they do not. They should market the product because they will earn more if they do so. O C. The expected profits are $ if they market the product and S if they do not. They should not market the product because they will earn more if they do not. O D. The expected profits are $ if they market the product and S if they do not. They should not market the product because they will lose less if they do not.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The research department at a manufacturing company has developed a new process that it believes will result in an improved product. Management must decide
whether to go ahead and market the new product. The new product may or may not be better than the old one. If the new product is better and the company decides
to market it, sales should increase by $60,000. If it is not better and they replace the old product with the new product on the market, they will lose $22,000 to
competitors. If they decide not to market the new product, they will lose a total of $30,000 if it is better and just research costs of $20,000 if it is not. Complete parts
(a) and (b) below.
(a) Prepare a payoff matrix.
(Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.)
(b) lf management believes that the probability that the new product is better is 0.5, find the expected profits under each strategy and determine the best action.
Select the correct answer below and fill in the answer boxes to complete your choice.
(Type integers or decimals.)
O A. The expected profits are $
if they market the product and S
if they do not. They should market the product because they will lose less if they do.
O B. The expected profits are $
if they market the product and S
if they do not. They should market the product because they will earn more if they do so.
O C. The expected profits are $ if they market the product and S
if they do not. They should not market the product because they will earn more if they do
not.
O D. The expected profits are $ if they market the product and S
if they do not. They should not market the product because they will lose less if they do
not.
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