You run a small business selling fidget spinners, which each cost $3 to make. You can choose to make your own website for online sales with the help of a local developer for a cost of $10,000, or you can sell them via an existing online marketplace. On the marketplace you can sell fidget spinners for $8 each, but the marketplace takes a cut of 25%. On your own website you need to sell at a lower price of $7.50 each to divert customers from the marketplace (but you keep it all). There is a 10% chance that fidget spinners will become a fad and you will sell 200, 000 via the marketplace, or 130, 000 via your own website. Alternatively, the product is a flop and you expect sales of 25, 000 via the marketplace or 20, 000 via your own website.

(i) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value.

(ii) What is the maximum you would pay for any information about whether fidget spinners will become a fad (i.e. the EVPI)?

(b) Suppose you have the opportunity to conduct a product survey to help inform if fidget spinners will become a fad. Based on past surveys, 70% of fad products have been liked by the survey group, whereas 15% of flop products have been liked by the survey group.

(i) Assuming that the product survey is worth conducting, draw and evaluate a decision tree to determine what subsequent actions would be taken.

(ii) Calculate the EVSI and explain clearly what it means in this case