Response to the following problem:
Your firm is considering investing in a new product. Marketing research has determined that the sales of the new product depend, in large part, on the whether or not competitors jump in to mimic the product. Their assessment of sales, and the likelihood of mimicking is as follows:
Competitor's Reaction Probability Sales
Mimic 80% $1,000,000
Do not mimic 20% $10,000,000
a. What are the expected sales from this new product?
b. What is the standard deviation of possible sales of this new product?