Super Cola is considering the introduction of a root beer drink. The company feels that the probability of the new drink being successful is .6. The payoff table is as follows. Super Cola has a choice of two research firms to obtain information for this new product. Stanton Marketing has market indicators I₁ and I₂ for which P(I₁|S₁) = .7 and P(I₁|S₂) = .4. New World Marketing has indicators J₁ and J₂ for which P(J₁|S₁) = .6 and P(J₁|S₂) = .3. (Be sure to compute probabilities to the third decimal place.)
a.What is the optimal decision if neither research firm is used?
b.Compute the expected value of perfect information (EVPI).
c.Find the EVSIs for Stanton and New World.
d.If both research firms charge $5,000, which firm should be hired?
e.If Stanton charges $10,000 and New World charges $5,000, which firm should Super Cola hire?

Question

Super Cola is considering the introduction of a root beer drink. The company feels that the probability of the new drink being successful is .6. The payoff table is as follows.

Super Cola has a choice of two research firms to obtain information for this new product. Stanton Marketing has market indicators I₁ and I₂ for which P(I₁|S₁) = .7 and P(I₁|S₂) = .4. New World Marketing has indicators J₁ and J₂ for which P(J₁|S₁) = .6 and P(J₁|S₂) = .3. (Be sure to compute probabilities to the third decimal place.)
a.What is the optimal decision if neither research firm is used?
b.Compute the expected value of perfect information (EVPI).
c.Find the EVSIs for Stanton and New World.
d.If both research firms charge $5,000, which firm should be hired?
e.If Stanton charges $10,000 and New World charges $5,000, which firm should Super Cola hire?

Quizplus · Accepted Answer

The Answer of Super Cola is considering the introduction of a root beer drink. The company feels that the probability of the new drink being successful is .6. The payoff table is as follows. Super Cola has a choice of two research firms to obtain information for this new product. Stanton Marketing has market indicators I₁ and I₂ for which P(I₁|S₁) = .7 and P(I₁|S₂) = .4. New World Marketing has indicators J₁ and J₂ for which P(J₁|S₁) = .6 and P(J₁|S₂) = .3. (Be sure to compute probabilities to the third decimal place.) a.What is the optimal decision if neither research firm is used? b.Compute the expected value of perfect information (EVPI). c.Find the EVSIs for Stanton and New World. d.If both research firms charge $5,000, which firm should be hired? e.If Stanton charges $10,000 and New World charges $5,000, which firm should Super Cola hire?

Super Cola Is Considering the Introduction of a Root Beer