Homework SourseYou are called on to decide how your company should advertis
You are called on to decide how your company should advertise its newest product, a cell phone screen defroster for use in cold weather. Shown to the right is a decision tree for the profits (in $000\'s) you project for your sales of the defroster, depending on the weather this coming winter and your choice of advertising method.
a) Suppose P(Warm)equals=0.3
P(Moderate)equals=0.2
and P(Cold)equals=0.5
What is the expected value of each action?
EV(Point of Sale)=
EV(Magazine)=
EV(Internet)=
| Action | Sale | Outcome |
| Point of Sale | Warm | 530 |
| Point of Sale | Moderate | 610 |
| Point of Sale | Cold | 760 |
| Magazine | Warm | 410 |
| Magazine | Moderate | 540 |
| Magazine | Cold | 840 |
| Internet | Warm | 710 |
| Internet | Moderate | 660 |
| Internet | Cold | 480 |
Solution
EV(Point of Sale)= P(Warm) * POS Sale(Warm) + P(Moderate) * POS Sale(Moderate) + P(Cold) * POS Sale(Cold)
= 0.3 * 530 + 0.2 * 610 + 0.5 * 760 = 661
EV(Magazine)= P(Warm) * Magazine Sale(Warm) + P(Moderate) * Magzine Sale(Moderate) + P(Cold) * Magzine Sale(Cold)
= 0.3 * 410 + 0.2 * 540 + 0.5 * 840 = 651
EV(Internet)= P(Warm) * Internet Sale(Warm) + P(Moderate) * Internet Sale(Moderate) + P(Cold) * Internet Sale(Cold)
= 0.3 * 710 + 0.2 * 660 + 0.5 * 480 = 585
| Probability | Weather Condition | POS | Internet | Magzine |
| 0.3 | Warm | 530 | 410 | 710 |
| 0.2 | Moderate | 610 | 540 | 660 |
| 0.5 | Cold | 760 | 840 | 480 |
| 661 | 651 | 585 |
