Super Cola is as well considering the introduction of a root beer drink. The company feels that the possibility that the product will be a success is .6. The payoff table is as follows:
Success (s1)
Failure (s2)
Produce (d1)
$250,000
-$300,000
Do Not Produce (d2)
-$ 50,000
-$ 20,000
The company has a choice of two research firms to acquire information for this product. Stanton Marketing has market indicators I1 and I2 for which P(I1 | s1) = .7 and P(I1 | s2) = .4. New World Marketing has indicators J1 and J2 for which P(J1 | s1) = .6 and P(J1 | s2) = .3.
a.
What is the optimal decision if neither firm is used? Over what possibility of success range is this decision optimal?
b.
What is the EVPI?
c.
Find the EVSIs also efficiencies for Stanton and New World.
d.
If both firms charge $5,000 which firm should be hired?
e.
If Stanton charges $10,000 as well as New World charges $4,000, which firm should Super Cola hire? Why?