A new product has the following profit projections andassociated probabilities:
Profit: Probability:
150,000 0.10
100,000 0.25
50,000 0.20
0 0.15
-50,000 0.20
-100,000 0.10
A.) Use the expected value approach to decide whether tomarket the new product.
B.) Because of the high dollar values invloved; especially thepossibility of a 100,000 loss, the marketing vice president hasexpressed some concern about the use of the expected valueapproach. As a consequence, is a utility analysis is performed,what is the appropriate lottery?
C.) Assume the following indifferences probabilities areassigned. Do the utilities reflect the behavior os a risk taker or a risk avoider?
Profit: Indifference Probability
100,000 0.95
50,000 0.70
0 0.50
-50,000 0.25
D.) Use expected utility to make a recommendationdecision.
E.) Should the decision maker feel comfortable with the finaldecision recommended by the analysis?