A product manager at Clean & Brite (C&B) seeks to determine whether her company should market a new brand of toothpaste. If this new product succeeds in the marketplace, C&B estimates that it could earn

$1,800,000 in future profits from the sale of the new toothpaste. If this new product fails, however, the company expects that it could lose approximately

$750,000. If C&B chooses not to market this new brand, the product manager believes that there would be little, if any, impact on the profits earned through sales of C&B’s other products. The manager has estimated that the new toothpaste brand will succeed with probability 0.50. Before making her decision regarding this toothpaste product, the manager can spend

$75,000 on a market research study. Such a study of consumer preferences will yield either a positive recommendation with probability 0.50 or a negative recommendation with probability 0.50. Given a positive recommendation to market the new product, the new brand will eventually succeed in the marketplace with probability 0.75. Given a negative recommendation regarding the marketing of the new product, the new brand will eventually succeed in the marketplace with probability 0.25.

a. To maximize expected profit, what course of action should the C&B product manager take?

b. Compute and interpret EVSI for this decision problem.

c. Compute and interpret EVPI for this decision problem.