Question

Home Warehouse is considering marketing one of two new electric saws for the coming holiday season: XL2000 or the Saw Warrior 3000. XL2000 is a unique saw and appears to have no competition. Estimated profits (in thousands of dollars) under high, medium, and low demand are as follows:

XL 2000
Demand
XL2000	High	Medium	Low	Minimal
Profit	$3,000	$800	$400	$100
Probability	0.2	0.5	0.2	0.1

Home Warehouse is optimistic about its Saw Warrior 3000 saw. However, the concern is that profitability will be affected by a competitor’s introduction of a electric saw viewed as similar to Saw Warrior. Estimated profits (in thousands of dollars) with and without competition are as follows:

Saw Warrior 3000	Demand
With Competition	High	Medium	Low	Minimal
Profit	$800	$400	$200	$100
Probability	0.5	0.2	0.1	0.2
Saw Warrior 3000	Demand
Without Competition	High	Medium	Low	Minimal
Profit	$1,600	$800	$400	$100
Probability	0.5	0.2	0.2	0.1

1. Develop a decision tree for the Home Warehouse problem.

2. For planning purposes, Home Warehouse believes there is a 0.7 probability that its competitor will produce a new game similar to Saw Warrior. Given this probability of competition, the director of planning recommends marketing the Saw Warrior saw . Using expected value, what is your recommended decision?

3. List 3 other factors you should advise Home Warehouse to thing about when trying to solve this problem? Think outside the box. Be Creative.

Answer 1