QUESTION 2 - RISK AND UNCERTAINTY 25 marks CRM Co is a manufacturer of product A and is planning to launch a new version of A made with a much more superior raw material. The company has commissioned market research to establish possible demand for the upgraded product A and the following information has been obtained. If the price is set at $350, demand is expected to be 950 units. At $560, 800 units and at $670, only 400 units will be demanded. Variable costs are estimated at either $180, $200, or $240. A decision needs to be made on what price to charge. Required: (a) Construct a pay-off table showing the nine possible outcomes for the expected contribution (9 marks) (b) Indicate the decision that would be made using the following decision criteria: (1) maximax, (ii) maximin (ii) minimax regret.(10 marks) (c) Describe three risk profiles that may be exhibited by a decision maker and indicate which decision criteria would have been used in their decision-making process.(6 marks) QUESTION 2 - RISK AND UNCERTAINTY 25 marks CRM Co is a manufacturer of product A and is planning to launch a new version of A made with a much more superior raw material. The company has commissioned market research to establish possible demand for the upgraded product A and the following information has been obtained. If the price is set at $350, demand is expected to be 950 units. At $560, 800 units and at $670, only 400 units will be demanded. Variable costs are estimated at either $180, $200, or $240. A decision needs to be made on what price to charge. Required: (a) Construct a pay-off table showing the nine possible outcomes for the expected contribution (9 marks) (b) Indicate the decision that would be made using the following decision criteria: (1) maximax, (ii) maximin (ii) minimax regret.(10 marks) (c) Describe three risk profiles that may be exhibited by a decision maker and indicate which decision criteria would have been used in their decision-making process.(6 marks)