Drawing detailed decision-tree diagram

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Reference no: EM132277498

A toy manufacturer must decide on which of two new games to manufacture, A or B. If he chooses to make game B, there is a 60% chance that a competitive game will appear on the market. Sales for the company are classified as high (100,000), medium (50,000), or low (10,000) units. Marketing has determined that for game A the probability for high sales is 0.3 and for medium is 0.6. If game B is marketed, the probability of high sales is 0.5 if no competitor develops and 0.2 if the competitive game appears. The probability of low sales is 0.2 whether or not competition occurs. Game A costs $2 to produce and will be sold for $4. Game B costs $3 and will be sold for $6 if no competition occurs and $5 is competition occurs.

(a) Drawing a detailed decision-tree diagram for this problem, determine the optimum decision for the toy manufacturer if he wishes to maximize his total profits.

(b) What would be his decision if he is interested only in maximizing the number of units he sells?

Reference no: EM132277498

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