What is expected value of perfect information

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Reference no: EM131892361

The Super Cola Company must decide whether or not to introduce a new diet soft drink. Management feels that if it does introduce the diet soda it will yield a profit of $1.25 million if sales are 100 million, a profit of $300,000 if sales are 50 million, or it will lose $1.75 million if sales are only 1 million bottles. If Super Cola does not market the new soda diet soda idea, it will suffer a loss of $400,000.

a. Construct a payoff table for this problem.

b. Construct a regret (opportunity loss) table for this problem.

c. An internal marketing research study has found P(100 million in sales) = 1/2, P(50 million in sales) = 1/3, and P(1 million in sales) = 1/6. Should Super Cola introduce the new diet soda based on expected payoff (profits)?

d. Based on expected opportunity losses, which strategy is best for Super Cola?

e. What is the EVPI (expected value of perfect information)?

f. A consulting firm can perform a more thorough study for $350,000. Should management have this study performed?

g. If the conditional probabilities are .75, .15, and .10 for the three states what would be the expected value of sample information (EVSI)?

Reference no: EM131892361

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