ABC Company is considering a new consumer product. They believe that the XYZ Co.
ID: 2346162 • Letter: A
Question
ABC Company is considering a new consumer product. They believe that the XYZ Co.may come out with a competing product, with probability of 0.8358209. If ABC adds an
assembly line for the product and XYZ does not follow with a competitive product, the
expected profit is $40,000; if they add an assembly line and XYZ does follow, they still
expect a $10,000 profit. If ABC adds a new plant addition and XYZ does not produce a
competitive product, they expect a profit of $600,000; if XYZ does compete for this
market, ABC expects a loss of $100,000.
Please establish a decision tree model for this case and discuss what is the optimal
strategy for ABC Company.