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New Product Development Problem A company has developed a new product. It needs to decide whether or not to product test and market test before

New Product Development Problem
A company has developed a new product. It needs to decide whether or not to product test
and market test before launch, and has been advised that, even though these processes do
cost money, they increase the likelihood of success for the product. it has been agreed
within the company that you can only market test a product once it has passed product
testing. If a product fails either test, it is regarded as worthless. You have been able to
obtain details of the costs of these testing processes, together with historical data which
suggest how much the likely success of the product is enhanced by successful testing.
Launching the product will cost 300,000 and the estimates of profit are as follows:
Highly successful =2,000,000
Moderately successful =1,000,000
Low level success =500,000
Failure =100,000
The historical data that has been collected gives the following results:
Product testing costs 100,000 and market testing costs 100,000. Should the product fail
either of these tests it is abandoned. The probability of passing product testing is 80% and
the probability of passing market testing is 90%. The alternative to this whole process is to
sell the product design for 500,000.
A. Construct a decision tree, calculate expected value at each node, and write a very brief
report advising the company on its best course of action.
B. What would be the 'best' decision if the profit from the highly successful product were
estimated to be 3,500,000 rather than 2,000,000?
C. Discuss your solution to part B by listing all the possible outcomes (along with their values
and probabilities) that could happen if the company is to follow the recommendation
suggested by your solution.
D. Refer to the settings specified under part B once again and imagine that you were the
decision maker of this company. What would you really decide to do? Would you follow the
recommendation obtained by the decision tree model? Why yes or why not?
At A University, four instructors teach Foundations of Business Analytics - a large compulsory
module for more than 600 first year undergraduate students. The university timetabling team have
split the students into seven groups and have scheduled module webinars into the following time
slots:
Slot 1: Monday 10 am -11 am
Slot 2: Monday 11am-12 noon
Slot 3: Monday 12 noon -1pm
Slot 4: Monday 2pm-3pm
Slot 5: Monday 3pm-4pm
Slot 6: Tuesday 2pm-3pm
Slot 7: Friday
1pm-2pm
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