Consider again Techware’s decision problem described in Problem 4. Use the PrecisionTree add-in to identify the strategy that maximizes Techware’s expected net revenue from the given marketing opportunities. Also, perform sensitivity analysis on the optimal decision and summarize your findings. In response to which model inputs is the expected net revenue value most sensitive?

Problem 4

Techware Incorporated is considering the introduction of two new software products to the market. In particular, the company has four options regarding these two proposed products: introduce neither product, introduce product | only, introduce product 2 only, or introduce both products. Research and development costs for products 1 and 2 are $180,000 and $150,000, respectively. Note that the first option entails no costs because research and development efforts have not yet begun. The success of these software products depends on the trend of the national economy in the coming year and on the consumers’ reaction to these products. The company’s revenues earned by introducing product | only, product 2 only, or both products in various states of the national economy are given in Table 7.7. The probabilities of observing a strong, fair, and weak trend in the national economy in the coming year are 0.30, 0.50, and 0.20, respectively. 

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TABLE 7.7 Revenue Table for Techware's Decision Problem Decision/Trend in National Economy Introduce Neither Product Introduce Productl Only Introduce Product2 Only Introduce Both Products Strong $0 $500,000 $420,000 $820,000 Fair $0 $260,000 $230,000 $390,000 Weak $0 $120,000 $110,000 $200,000