Problem
Dow Chemical, Inc., develops industrial chemicals that are used by other manufacturers to produce photographic chemicals, preservatives, and lubricants. One of their products, K-1000, is used by several photographic companies to make a chemical that is used in the film-developing process. The company is considering expanding into Kansas City, Missouri, and wants to decide the best plant size that would serve the state of Missouri. The plans under consideration are small, medium, or large. The company was able to determine the payoff table for the plants and market conditions as follows:
The company was able to determine that the probability of selling K-1000 into the Low and, and Med market conditions is 0.4, 0.35, respectively without the use of any additional information.
The company is considering hiring a market research team to perform a survey ($1,000 in costs) to get a better feeling for the probability of the market conditions. The marketing research firm has provided the company with the following information. The survey can produce either favorable results (probability 0.65) or unfavorable results. If the market survey is favorable, the marketing firm was able to determine that the probability of selling K-1000 into the Low, and Med market is 0.30, and 0.25, respectively. If the market survey is unfavorable, the probability of selling K-1000 into the Low, and Med is 0.40, and 0.30, respectively.
a) Should the company undertake the marketing research survey?
b) How much the company might be willing to pay for the study?