Draw the complete decision tree with the survey option

Reference no: EM131283555

Your company must decide whether or not to introduce a new product. The sales of the product will be either at a high level (a success) or quite low (a flop), The conditional value for this decision is as follows:

			Decision	States of Nature
High Sales	Low Sales
(H)	(L)
Introduce product	$4,000,000.00	-$2,000,000.00
Do not intrduce product	0	0
Probaility	0.3	0.7

Your company has the option to conduct a market survey to better ascertain the true market demand. The survey will cost $0.2M. The survey does not provide perfect information about sales, but there are three possible outcomes from the survey: (1) the survey may predict success (high sales) for the new product, (2) the survey may predict that the new product will fail (low sales); or (3) the survey result may be inconclusive. You are given the following notation and information: Conditional Probablity of Survey Predictions, Given Potential Sales

				Potential Level of Sales
			Market Survey Results (Survey Prediction)	High Sales	Low Sales
			Market Survey Results (Survey Prediction)	(H)	(L)
			Survey predicts high sales (S)	0.4	0.1
			Survey inconclusive (I)	0.4	0.5
			Survey predicts low sales (F)	0.2	0.4

To evaluate the economic worth of the survey, answer the following questions: (a) Based on the expected monetary value, what is your decision before taking the survey? (b) What is the expected value of the perfect information before taking the survey? (c) Draw the complete decision tree with the survey option? (d) What is the expected value of the perfect information after you have taken the survey? (e) What is the worth of the survey informatio ? (f) What is the best course of action?

Reference no: EM131283555

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