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In: Statistics and Probability

A management company must first decide whether to undertake a market research survey. If the market...

  1. A management company must first decide whether to undertake a market research survey. If the market research study is conducted, the outcome will either be favorable (F) or unfavorable (U). Assume there are only two decision alternatives, D1 and D2, and two states of nature, S1 and S2. The payoff table showing profit is as follows:

State of Nature

Decision Alternative

S1

S2

D1

100

300

D2

400

200

  1. Using the following probabilities, what is the optimal decision strategy?

P(F) = 0.56        P(S1/F) = 0.57               P(S1/U) = 0.18              P(S1) = 0.40

P(U) = 0.44       P(S2/F) = 0.43               P(S2/U) = 0.82             P(S2) = 0.60

  1. Find the Efficiency of this market research. What would be your recommendation?
  2. How much will this company be willing to pay for this market research?

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