Payoff Table

Low Estimate* High Estimate*

P = .3 P = .7

Aerosol Container

5 Ounce Package $45,000 $95,000

10- Ounce Package -$30,000 $155,000

*Represents the economic condition at the time of the product introduction

Calculate

i) EMV 5 oz package 0.3*45,000 + 0.7*95,000 = $80,000

ii) EMV 10 oz package 0.3*-30,000 + 0.7*155,000 = $99,500

*EVwPI = 45,000*0.3 + 155,000*0.7 = 122,000

iii) EMVPI 122,000 99,500 =

Question 1: Explain the concept of EMVPI. Given the facts of the case, is the proposed research (test market, cost of $40,000) economically justified? Would you expect the test market to provide perfect information? Briefly explain.