A What is EMV without using sample information for this problem? Create decion tree for the new problem. Compute EVWSI (Expected Value with Sample Information). Calculate EVSI (Expected Value of Sample Information). Would it be worthwhile to use Firm B if the cost of market survey were $5000? Example4: New Product - Suppose that an organization must decide whether or not to develop, produce, market, and sell a new product. Prior to this initial decision, the organization can hire a firm (Firm B) to irvey the market to determine whether or not the product will be a success. Hence, there is a sequence of two decisions to make: 1. Hire the firm or not 2. Develop, produce, market, and sell the product, or not (as a single decision) The following costs and incomes are associated with this problem: 1) Income from product if market is good = $500,000, if market is bad = -$100,000 2) Cost of Market Survey = $60,000 Suppose that initial probabilities given for the example were P(GM) = .7, P(BM) = .3, P(PGMGM) = .9, and P(PBM|BM) = .7. where GM:good market; BM:bad market; PGM:predict a good market; PBM:predict a bad market. R Solve the problem on a decison tree. SISTES A What is EMV without using sample information for this problem? Create decion tree for the new problem. Compute EVWSI (Expected Value with Sample Information). Calculate EVSI (Expected Value of Sample Information). Would it be worthwhile to use Firm B if the cost of market survey were $5000? Example4: New Product - Suppose that an organization must decide whether or not to develop, produce, market, and sell a new product. Prior to this initial decision, the organization can hire a firm (Firm B) to irvey the market to determine whether or not the product will be a success. Hence, there is a sequence of two decisions to make: 1. Hire the firm or not 2. Develop, produce, market, and sell the product, or not (as a single decision) The following costs and incomes are associated with this problem: 1) Income from product if market is good = $500,000, if market is bad = -$100,000 2) Cost of Market Survey = $60,000 Suppose that initial probabilities given for the example were P(GM) = .7, P(BM) = .3, P(PGMGM) = .9, and P(PBM|BM) = .7. where GM:good market; BM:bad market; PGM:predict a good market; PBM:predict a bad market. R Solve the problem on a decison tree. SISTES
