Question
A clothing retailer is considering which of three mutually exclusive advertising packages to use when it launches its new range of autumn fashion. The sales
A clothing retailer is considering which of three mutually exclusive advertising packages to use when it launches its new range of autumn fashion. The sales revenue from the range will depend on customer reaction to the chosen advertising package. There is a 25% chance that customer reaction will be good; a 40% chance that customer reaction will be moderate and a 35% chance that customer reaction will be poor. The contribution, net of advertising costs, for each of the possible outcomes is as follows:
Customer reactionPackage A ($000)Package B ($000)Package C ($000)
Good700900800
Moderate600500400
Poor400300500
What is the basis of expected value, the maximum amount that should be paid for the information from the market research company?
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