Question

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

a) 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
b) Find the Efficiency of this market research. What would be your recommendation?
c) How much will this company be willing to pay for this market research?

Answer 1