Jerry decision to the probability value

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Reference no: EM13102423

Jerry Smith has done some analysis about the profiability of opening a bicycle shop. If jerry builds the large bicycle shop, he will earn $60000 if the market is favorable, but he will lose $40000 if the market is unfavorable. The small ship will return a $30000 profit in a favorable market and a $10000 loss in an unfavorable market. At the present time, he believes that there is a 50-50 chance that the market will be favorable. His old marketing professor will charge him $5000 for the marketing research. it is estimated that there is a 0.6 probability that the survey will be favorable. Futhermore, there is a 0.9 probability that the market will be favorable given a favorable outcome from the study. However, the marketing professor has warned Jerry that thre is inly a probability of 0.12 of favorable market if the marketing research are not favorable. Jerry is confused.

a) Should jerry use the marketing research ?

b) Jerry however is unsure the 0.6 probability of a favorable marketing research study is correct. How sensitive is Jerry's decision to this probability value ? How far can this probability value deviate from 0.6 without causing Jerry to change his decision.

Reference no: EM13102423

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