Suppose now that Acme has just about finished the development process on the new prod- uct, so that fixed development costs are no longer an issue, and technological failure is no longer a possibility. The only question is whether Acme should market the product. given the uncertainty about the eventual sales volume. If the company decides to market 6-5 Multistage Decision Problems 243 Copyright 2017 Gengage Learning. All Righta Reserved. May not be cepied, soanned, or duplicated, in whole or in part. WCN 02-200-208 Copyrighted m the product, it will incur fixed marketing costs of $2 million. To keep the model simple, we now assume that there are only two possible market outcomes, good or bad. The sales volumes for these two possible outcomes are 600,000 units and 100,000 units, and Acme assesses that their probabilities are 0.4 and 0.6. However, before making the ultimate deci- sion, Acme has the option to hire a well-respected marketing research firm for $150,000. If Acme decides to use this option, the result will be a prediction of good or bad. That is, the marketing research firm will predict that either "We think the market for this product will be good" or "We think the market for this product will be bad." Acme has used this firm before, so it has a sense of the prediction accuracy, as indicated in Table 6.1. Each row in this table indicates the actual market outcome, and each column indicates the prediction. So if the actual market is good, the prediction will be good with probability 0.8 and bad with probability 0.2. If the actual market is bad, the prediction will be bad with probability 0.7 and good with probability 0.3. What should Acme do to maximize its EMV? Table 6.1 Prediction Accuracy of Marketing Research Firm Actual/Predicted Good Bad 0.2 0.7 Good 0.8 0.3 Bad Objective To use a decision tree to see whether the marketing research firm is worth its cost and whether the product should be marketed.