If a company is conducting a product development program and planning to market a new product. It is considering conducting a marketing survey, and would like to determine the expected monetary value of the new product program with and without the survey, in order to determine whether the survey should be conducted. The company can choose to do the survey, or introduce the product without the survey.
The survey will cost $100,000. The survey can produce either good results (30%), average results (40%) or poor results (30%). Based on the results of the survey, the company can decide whether to make the product, or not make the product. If the company decides to make the product, if sales are high, the expected profits, not including the cost of the survey are $1,000,000. If sales are low, the expected loss, not including the cost of the survey is ($500,000).
If the product is introduced without any survey, the probability of high sales is .3. Based on past experience with surveys, for products with good results, the probability of high sales is .6, with average results the probability of high sales is .5, and with poor results, the probability of high sales is .1.
Based on this data, create a decision tree and calculate the expected monetary value of doing the survey. What should the company do?