A new product has the following profit projections and associated probabilities. Profit Probability $153,000 0.10 $96,000 0.25 $53,000 0.20 $0 0.15 -$53,000 0.20 -$96,000 0.10 (a) Use the expected value approach to decide whether to market the new product. (Calculate EV(Profit) in dollars.) EV(Profit) = $29700 Since EV(Profit) is positive the expected value approach suggests that we should market the product. (b) Because of the high dollar values involved, especially the possibility of a $96,000 loss, the marketing vice president has expressed some concern about the use of the expected value approach. As a consequence, if a utility analysis is performed, what is the appropriate lottery? O p = probability of $96,000 (1 - p) = probability of -$96,000 Op = probability of $96,000 (1 - p) = probability of -$53,000 p = probability of $153,000 (1 - p) = probability of -$53,000 O p = probability of $153,000 (1 - p) = probability of -$96,000 (c) Assume that the following indifference probabilities are assigned. Profit Indifference Probability (p) $96,000 0.97 $53,000 0.73 $0 0.52 -$53,000 0.28 Do the utilities reflect the behavior of a risk taker or a risk avoider? Risk Avoider Risk Taker (d) Use expected utility to make a recommended decision. (Assign a utility of 10 to the payoff of $153,000 and a utility of 0 to the payoff of -$96,000.) EU(market the product) = 119850 EU(do not market the product) = Since EU (market the product) is ---Select--- EU(do not market the product) the expected utility approach suggests that we ---Select--- market the product.