Answered: Your company must decide whether to…

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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Your company must decide whether to introduce a new product. The sales of the product will be either at a high (success) or low (failure) level. The conditional value for this decision is as follows

Decision	High	Low
Introduce	$4,000,000	-$2,000,000
Do Not Introduce	0	0
Probability	0.3	0.7

You have the option to conduct a market survey to sharpen you market demand estimate. The survey costs $200,000. The survey provides incomplete information about the sales, with three possible outcomes: (1) predicts high sales, (2) predicts low sales, or (3) inconclusive. Such surveys have in the past provided these results

Result	High	Low
Predicts High	0.4	0.1
Inconclusive	0.4	0.5
Predicts Low	0.2	0.4

c) Draw the complete decision tree, including the survey option.

Explain where the values on the decision tree come from

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