33. A company is contemplating the introduction of a new product and is considering the advisability of test marketing done before finally deciding on it. The options on introduction are: to introduce ( call it A1) and not to introduce (call it A2). The management has estimated the following outcomes and the corresponding prior probabilities.

In the event of test marketing, there are three outcomes to be considered. They are / 1 -test sales of greater than 20% of the market, Ii-test sales of 10 - 20% of the market, and Ir test sales of less than 10% of the market. The conditional probabilities of the test results are given as follows:

(a) What is the best option of the company before the test?

(b) How much would it be worth to gain perfect knowledge of the outcome?

(c) What action is the best for each possible result of the test marketing?

(d) Determine the value of the test marketing.

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Outcome d the product captures 20% of the market d the product captures 7% of the market d3: the product captures 2% of the market Profit (Loss) Prob. Rs 10 m 0.70 Rs 1 m 0.10 (Rs 5 m) 0.20