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Company ABC has developed a new line of products. Management is attempting to decide on appropriate marketing strategies. Three strategies being considered are: A (Aggressive),
Company ABC has developed a new line of products. Management is attempting to decide on appropriate marketing strategies. Three strategies being considered are: A (Aggressive), B (Basic), and C (Continuous). The market conditions are: S (strong), W (weak). Management's best estimate of the net profits (in $M) in each case are given in the following payoff table: Decision B Market S W 30 -8 20 7 5 15 Management's best estimate of the probabilities of a strong market or a weak market are 0.45 and 0.55 respectively. Although the basic strategy B is appealing for Company ABC, ABC's management has the option of asking the marketing research group to perform a market research study. Within a month, this group can report on whether the study was encouraging (E) or discouraging (D). In the past, such studies have tended to be in the right direction: When market ended up being strong, such studies were encouraging 60% of the time and they were discouraging 40% of the time. Whereas, when market ended up being weak. these studies were discouraging 70% of the time and encouraging 30% of the time. Such a study would cost $500.000. Should management request the market research study or not
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