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A company needs to decide whether to develop a new product. The decision tree is shown below. The production cost is uniformly distributed between $1.75
A company needs to decide whether to develop a new product. The decision tree is shown below. The production cost is uniformly distributed between $1.75 and $2.25, and the market size for the product is normally distributed with mean 10,300 units and standard deviation 2,200 units. The company is risk-averse and its utility function is given by U(Z) = 1e 10,000, where Z is the net profit. Should the company develop the new product ? Cost of Market Net Profit (Z) = S(4-CX- $20,000 Production (C) Size (X) Develop Do Not Develop Net Profit = 0
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