A management company, Anova, is considering developing and marketing a new product. It is estimated to be twice as likely that the product would prove to be successful as unsuccessful. If it were successful, the expected profit would be $1,500,000. If unsuccessful, the expected loss would be $1,800,000. Anova obviously may also choose to not develop the new product.

a) How much should the Anova decision makers be willing to pay for information that would allow them to know ahead of the decision which outcome (i.e., successful or unsuccessful) would occur? (NOTE: probabilities should be rounded to three decimal places) (10 points)

A marketing survey can be conducted at a cost of $100,000 to predict whether the product would be successful. Past experience with such surveys indicates that successful products have been predicted to be successful 80% of the time, whereas unsuccessful products have been predicted to be unsuccessful 70% of the time.

b) Should Anova consider conducting the marketing survey? Justify. [HINT: use the expected value of perfect information from part a] (1 point)

c) Assume now that the marketing survey is conducted. Determine how Anova can maximize its expected profits (i.e., maximize its expected payoff). Make sure to provide a managerial statement for the decision strategy. (i.e., verbally communicate the decision strategy). (NOTE: probabilities should be rounded to three decimal places) (18 points)

d) Find the Expected Value of Sample Information (EVSI), which is the maximum amount that Teledist is willing to pay for conducting the marketing survey. (2 points)