Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What is the correct way to construct a decision tree for the following scenario? No calculations are needed, however please show which scenarios and corresponding

What is the correct way to construct a decision tree for the following scenario? No calculations are needed, however please show which scenarios and corresponding costs and probabilities go on which nodes and branches.

Scenario:

PLE faces two possible decisions: introduce the product globally at a cost of $850,000 or evaluate it in a North American test market at a cost of $200,000. If PLE introduces the product globally, PLE might find either a high or low response to the product. The probabilities of these events are estimated to be 0.6 and 0.4, respectively. With a high response, gross revenues of $2,000,000 are expected; with a low response, the figure is $450,000. If PLE starts with a North American test market, it might find a low response or a high response, with probabilities of 0.3 and 0.7, respectively. This may or may not reflect the global market potential. In any case, after conducting the marketing research, PLE next needs to decide whether to keep sales only in North America, market globally, or drop the product.

If the North American response is high and PLE stays only in North America, the expected revenue is $1,200,000. If it markets globally (at an additional cost of $200,00), the probability of a high global response is 0.90 (low global response probability is 0.10) with revenues of $2,000,00 ($450,000 if the global response is low).

If the North American response is low, and it remains in North America, the expected revenue is $200,000. If PLE markets globally (at an additional cost of $600,000), the probability of a high global response is 0.05 (low global response probability is 0.95), with revenues of $2,000,000 ($450,000 if the global response is low).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Concepts In Discrete Mathematics

Authors: Mofidul Islam

1st Edition

9353146372, 9789353146375

More Books

Students also viewed these Mathematics questions

Question

It is an adjustment to the book balance.

Answered: 1 week ago

Question

8. What are the costs of collecting the information?

Answered: 1 week ago

Question

1. Build trust and share information with others.

Answered: 1 week ago