The research department of the Alied Manufacturing Company h

The research department of the Alied Manufacturing Company has developed a new product. If the new product is better than the okl product and the company decides to market it, sales should increase by $45,000 If it is not better and they market the new product, they will lose $35,000 If they decide not to market the new product, they wiD lose a total of $25,000 if it is better, and just research costs of $15,000 if it is not Fill in the values for the payoff matrix If management believes there is a probability ofO ^ that the new product is better, find the expected profits under each strategy and determine the best action The expected profit if they market the new product is The expected profit if they don\'t market the new piodw t is (Simplify your answers) What is the best action for the company? Market the new product Don\'t market the new product

Solution

a) Payoff Matrix:

=

[ 45000 -35000 ]

[ -25000 -15000 ]

b)

The expected profit if they market new product is = (0.5 * 45000 )+ (0.5*(-35000)) = $5000 Answer

The expected profit if they don\'t market new product is = (0.5 * (-25000) )+ (0.5*(-15000)) = $-20000 Answer

c) Market the new product