The Miramar Company is going to introduce one of three new products: a widget, a hummer, or a nimnot. The market conditins (favorable, stable, or unfavorable) will determine the prodit or loss the company realizes, as showing in the following payoff table.
|
Market Conditions
|
|
Favorable
|
Stable
|
Unfavorable
|
|
Product
|
.2
|
.7
|
.1
|
|
Widget
|
$120,000
|
$70,000
|
$-30,000
|
|
Hummer
|
60,000
|
40,000
|
20,000
|
|
Nimnot
|
35,000
|
30,000
|
30,000
|
- a) Computer the expected value for each decision and select the best one.
- b) Develop the opportunity loss table and compute the expected opportunity loss for each product.
- c) Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.