Question
In: Statistics and Probability
The Super Cola Company must decide whether or not to introduce a new diet soft drink....
The Super Cola Company must decide whether or not to introduce a new diet soft drink. Management feels that if it does introduce the diet soda it will yield a profit of $1 million if sales are around 100 million, a profit of $200,000 if sales are around 50 million, or it will lose $2 million if sales are only around 1 million bottles. If Super Cola does not market the new diet soda, it will suffer a loss of $400,000. Construct a payoff table for this problem.
A payoff table is given as:
|
State of Nature |
|||
|
Decision |
s1 |
s2 |
s3 |
|
d1 |
10 |
8 |
6 |
|
d2 |
14 |
15 |
2 |
|
d3 |
7 |
8 |
9 |
- What decision should be made by the optimistic decision maker?
- What decision should be made by the pessimistic decision maker?
- What decision should be made under minimax regret?
- If the probabilities of s1, s2, and s3 are 0.2, 0.4, and 0.4, respectively, then what decision should be made under expected value?
- Using the probabilities in d), what is the EVPI?
Solutions
Expert Solution
Answer:
Given,
|
State of Nature |
|||
|
Decision |
s1 |
s2 |
s3 |
|
d1 |
10 |
8 |
6 |
|
d2 |
14 |
15 |
2 |
|
d3 |
7 |
8 |
9 |
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