Super Cola Is Also Considering the Introduction of a Root

question 15

Essay

Super Cola is also considering the introduction of a root beer drink.The company feels that the probability that the product will be a success is .6.The payoff table is as follows: $$\begin{array} { l | r r } &Success (s1)&Failure (s2)\\\hline\text { Produce } \left( d _ { 1 } \right) & \$ 250,000 & - \$ 300,000 \\\text { Do Not Produce } \left( d _ { 2 } \right) & - \$ 50,000 & - \$ 20,000\end{array}$$ The company has a choice of two research firms to obtain information for this product.Stanton Marketing has market indicators,I₁ and I₂ for which P(I₁ | s₁)= .7 and P(I₁ | s₂)= .4.New World Marketing has indicators J₁ and J₂ for which P(J₁ | s₁)= .6 and P(J₁ | s₂)= .3.
a.What is the optimal decision if neither firm is used? Over what probability of success range is this decision optimal?
b.What is the EVPI?
c.Find the EVSIs and efficiencies for Stanton and New World.
d.If both firms charge $5,000, which firm should be hired?
e.If Stanton charges $10,000 and New World charges $4,000, which firm should Super Cola hire? Why?

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