Jim Sellers is thinking regarding producing new kind of electric razor for men. If the market were favorable, he would get a return of $100000,but if the market for this new kind of razor were unfavorable, he would lose $60000. Since Ron Bush is a good friend of Jim Sellers, Jim is considering the possibility of using Bust marketing research to gather additional information regarding the market for the razor. Ron has recommend that jim either employ a survey or a pilot study to test the market. The survey would be the sophiticated questionaire administered to a test market. It will cost $5000. Another alternative is to run the pilot study. This would involve producing a limited number of new razors and trying to sell them in two cities which are typical of American cities. The pilot study is more accurate but is also more expensive. It will cost $20000. Ron bush has suggested that it would be a good idea for Jim to conduct either the survey or the pilot before Jim makes the decision concerning whether to producethe new razor. But Jim is not sure if the value of the survey or the pilot is worth the cost.
Jim estimates that the probability of a successful market without performing a survey or pilot study is 0.5. Furthermore, the probability of a favorable survey result given a favorable market for razor is 0.7. and the probability of a favorable survey result given an unsucessful market for razor is 0.2. In addition, the probability of an unfavorable pilot study given an unfavorable market is 0.9, and the probability of an unsuccesful pilot study result given a favorable market for razor is 0.2.
a- Draw the decision tree for this problem without the probability values.
b- Compute the revised probabilities need to complete the decision ,and place these value in ddecision tree
c- What is the best decision for Jim ? Use EMV as decision criterion