Decide market the new product-expected value approach

Reference no: EM13114403

A new product has the following profit projections and associated probabilities:

Profit Probability
$150,000 .10
$100,000 .25
$ 50,000 .20
0 .15
-$50,000 .20
-$100,000 .10

a. Use the expected value approach to decide whether to market the new product.
b. Because of the high dollar values involved, especially the possibility of a $100,000 loss, the marketing vice president has expressed some concern about the use of the expected value approach. As a consequence, if a utility analysis is performed, what is the appropriate lottery?
c. Assume that the following indifference probabilities are assigned. Do the utilities reflect the behavior of a risk taker or a risk avoider?

Profit Indifference Probability
$100,000 .95
$ 50,000 .70
0 .50
-$50,000 .25

d. Use expected utility to make a recommended decision.
e. Should decision maker feel comfortable with the final decision recommended by the analysis?

Reference no: EM13114403

Questions Cloud

Compute the price of the bonds on their issue date : Compute the price of the bonds on their issue date. The following information is taken from present value tables: Present value of an annuity for 10 periods at 3%..8.5302

Calculate approximate values of radius of chlorine molecule : Use the van der Waals parameters for chlorine to calculate approximate values of (a) the Boyle temperature of chlorine and (b) the radius of a Cl2 molecule regarded as a sphere.

Harley davidson firm that allocates common costs : Retrieve any report in the harley davidson firm that allocates common costs to a division, product, or service. Recast that report with unallocated costs and comment on the usefulness of that revised report.

Explain the chlorophyl extraction procedure : explain the chlorophyl extraction procedure in chemical terms. why is acetone effective in the extraction? how could the experiment be modified to increase the yield of chlorophyl extraction?

Decide market the new product-expected value approach : Use the expected value approach to decide whether to market the new product. Because of the high dollar values involved, especially the possibility of a $100,000 loss.

Describe how an f+ bacterium becomes an hfr bacterium : Briefly describe how an F+ bacterium becomes an Hfr bacterium and what occurs in conjugation between Hfr and an F- recipient bacterium.

Illustrate what are some important aspects of the decision : What is the breakeven gasoline price in the coming three years so that you would be indifferent between the two options? Illustrate what are some important aspects of the decision that do not have to do with the price of gasoline and the $4,500 dis..

Purpose of business research : What is the purpose of business research? What is the definition of a hypothesis? Compare and contrast the difference between scientific and business research.

What structure is sectioned in a vasectomy : What structure is sectioned in a vasectomy? What are the effects of this procedure? Will it impact the number of sperm or the volume of semen produced?

User Account

All Pages