Super Cola: Introduction The next few questions refer to the following informati

Question

Super Cola: Introduction The next few questions refer to the following information Super Cola is 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: Success (s) Failure (s2) 250,000 -300,000 Introduce (d1) Do Not Introduce (d2) 0 0 The company could hire a market research company that, in similar situations in the past, gave one of two types of reports: favorable or unfavorable. You can assume that P[favorablel s)-7 and P(favorable s2)4. The company would charge 5,000 for the report. D Question 11 5 pts Super Cola: Part 1 Without hiring the market research company: what should Super Cola do if it follows a conservative strategy HTML Editor

Explanation / Answer

Q11.

Under conservative strategy, firm seeks to minimize its losses or the least payoff.

Minimum payoff for Introduce (d1) = - 300000

Minimum payoff for Do not introduce (d2) = 0

The maximum out of the above is 0. Therefore, best decision under conservative strategy is Do not introduce (d2)

Q13.

Expected value of d1 = 250000*0.6 - 300000*0.4 = 30,000

Expected value of d2 = 0

The maximum EV is 30000 . Therefore, to maximize expected value, Super Cola should Introduce (d1)

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