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A new product has the following profit projections andassociated probabilities: Profit: Probability: 150,000 0.10 100,000 0.25 50,000 0.20 0 0.15...

This question was answered on Jan 04, 2013. View the Answer
A new product has the following profit projections andassociated probabilities:
Profit: Probability:
150,000 0.10
100,000 0.25
50,000 0.20
0 0.15
-50,000 0.20
-100,000 0.10
A.) Use the expected value approach to decide whether tomarket the new product.
B.) Because of the high dollar values invloved; especially thepossibility of a 100,000 loss, the marketing vice president hasexpressed some concern about the use of the expected valueapproach. As a consequence, is a utility analysis is performed,what is the appropriate lottery?
C.) Assume the following indifferences probabilities areassigned. Do the utilities reflect the behavior os a risk taker ora risk avoider?
Profit: Indifference Probability
100,000 0.95
50,000 0.70
0 0.50
-50,000 0.25
D.) Use expected utility to make a recommendationdecision.
E.) Should the decision maker feel comfortable with the finaldecision recommended by the analysis?
A new product has the following profit projections andassociated probabilities: Profit: Probability: 150,000 0.10 100,000 0.25 50,000 0.20 0 0.15 -50,000 0.20 -100,000 0.10 A.) Use the expected value approach to decide whether tomarket the new product. B.) Because of the high dollar values invloved; especially thepossibility of a 100,000 loss, the marketing vice president hasexpressed some concern about the use of the expected valueapproach. As a consequence, is a utility analysis is performed,what is the appropriate lottery? C.) Assume the following indifferences probabilities areassigned. Do the utilities reflect the behavior os a risk taker ora risk avoider? Profit: Indifference Probability 100,000 0.95 50,000 0.70 0 0.50 -50,000 0.25 D.) Use expected utility to make a recommendationdecision. E.) Should the decision maker feel comfortable with the finaldecision recommended by the analysis?
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A new product has the following profit projections and associated probabilities:
Profit: Probability:
150,000 0.10
100,000 0.25
50,000 0.20
0 0.15
-50,000 0.20
-100,000 0.10
A.) Use the expected...

This question was asked on Jan 01, 2013 and answered on Jan 04, 2013.

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