Miramar Co. is going to introduce one of three new products: awidget, a hummer,
ID: 2954617 • Letter: M
Question
Miramar Co. is going to introduce one of three new products: awidget, a hummer, or a nimnot. The market conditions (favorable,stable, or unfavorable) will determine the profit or loss thecompany realizes as shown in the following payoff table: Product favorable.2 Stable.7 Unfavorable.1 Widget 120,000 70,000 -30,000 Hummer 60,000 40,000 20,000 Nimnot 35,000 30,000 30,000 A. Compute the expected value for each decision andselect the best one. B. Develop the opportunitiy loss table and compute theexpected opportunity loss for each product. C. Determine how much the firm would be willing to payto a market research firm to gain better information about futuremarket conditions. Miramar Co. is going to introduce one of three new products: awidget, a hummer, or a nimnot. The market conditions (favorable,stable, or unfavorable) will determine the profit or loss thecompany realizes as shown in the following payoff table: Product favorable.2 Stable.7 Unfavorable.1 Widget 120,000 70,000 -30,000 Hummer 60,000 40,000 20,000 Nimnot 35,000 30,000 30,000 A. Compute the expected value for each decision andselect the best one. B. Develop the opportunitiy loss table and compute theexpected opportunity loss for each product. C. Determine how much the firm would be willing to payto a market research firm to gain better information about futuremarket conditions.Explanation / Answer
Probability Product 0.2 0.7 0.1 Expected Value Widget 120000 70000 -30000 70000=0.2*120000+0.7*70000+0.1*?-30000? Hummer 60000 40000 20000 42000 Nimnot 35000 30000 30000 31000 Ideal 120000 70000 30000 76000 Maximum 70000 Decision Widget Product 0.2 0.7 0.1 Expected Probability Loss (EOL) Widget 0 0 60000 6000?=60000*0.1? Hummer 60000 30000 10000 34000 Nimnot 85000 40000 0 45000