Decide market the new product-expected value approach

Assignment Help Basic Statistics

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

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