Question
Inspire Food Product is attempting to decide if it should introduce a new line of energy bars called Energizing Healthy Bar. The company can test
Inspire Food Product is attempting to decide if it should introduce a new line of energy bars called Energizing Healthy Bar. The company can test market the energy bar in selected geographic areas or bypass the test market and introduce the product nationally. The cost of the test market is $110,000. If the company conducts the test market, it must wait to see the results before deciding whether to introduce the energy bar nationally or not. The probability of a positive test market result is estimated to be 0.65. Alternatively, the company can decide not to conduct the test market and go ahead and make the decision to introduce the energy bar or not. If the energy bar is introduced and is a success, the company estimates that it will realize an annual profit of $1.2 million, whereas if the introducing the product fails, a loss of $500,000 will incur. The company believes the probability of success for the energy bar is 0.50, if it is introduced without the test market. If the company does conduct the test market and it is positive, then the probability of successfully introducing the energy bar increases to 0.85. If the test market is negative and the company introduces the energy bar anyway, the probability of success drops to 0.15.
Using decision tree analysis, determine the best sequence of decisions.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started