Define risk profile and cumulative risk profile for strategy

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A company needs to decide whether to switch to a new product or not. The product that the company is currently making provides a fixed payoff of $150,000. If the company switches to the new product, its payoff depends on the level of sales. It is estimated that there are about 30% chance of high-level sales ($300,000 payoff), 50% chance of medium-level sales ($100,000 payoff), and 20% chance of low-level sales (losing $100,000). A survey which costs $20,000 can be performed to provide information regarding the sales to be expected. If the survey shows high-level sales, then there are about 60% chance of high-level sales and 40% chance of medium-level sales when the company sells the product. On the other hand, if the survey shows low-level sales, then there are about 60%chance of medium-level sales and 40% chance of low-level sales when the company sells the product.

Develop risk profile and cumulative risk profile for each strategy

Indicate which strategy dominate the others and explain why. Indicate type of the dominance

Reference no: EM13794703

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