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
  1. What decision should be made by the optimistic decision maker?
  2. What decision should be made by the pessimistic decision maker?
  3. What decision should be made under minimax regret?
  4. 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?
  5. 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

orchestra answered 1 year ago
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