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The computer-gaming market in the United States is estimated at $18.5 billion as of 2017. Consider the case of a certain computer-gaming company located in
The computer-gaming market in the United States is estimated at $18.5 billion as of 2017. Consider the case of a certain computer-gaming company located in California. It is considering the production of one of two new video games for the coming holiday season: Battle Pacific or Space Pirates. Battle Pacific is a unique game and appears to have no competition. Estimated profits (in thousands of dollars) under high, medium, and low demand are as follows. Demand Battle Pacific High Medium Low Profit $900 $600 $300 Probability 0.2 0.5 0.3 The company is optimistic about its Space Pirates game. However, the concern is that profitability will be affected by a competitor's introduction of a video game viewed as similar to Space Pirates. Estimated profits (in thousands of dollars) with and without competition are as follows. Space Pirates Demand With Competition High Medium Low Profit $800 $400 $300 Probability 0.3 0.4 0.3 Space Pirates Demand Without Competition High Medium Low Profit $1,500 $900 $400 Probability D.5 0.3 0.2(=) Develop a decision tree for the company's problem. Decision Tree Description High 0.2 Battle Pacific Medium 0.5 Low 1 High 0.3 With Competition Medium 0.4 Low Space Pirates U.3 High 0.5 Without Competition 5 Medium 0.3 Low 0.2 (b) For planning purposes, the company believes there is a 0.6 probability that its competitor will produce a new game similar to Space Pirates. Given this probability of competition, the director of planning recommends marketing the Battle Pacific video game. Using expected value, what is your recommended decision? O Battle Pacific O Space Pirates
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