Cases \S.1 a) The relevsett data are summarized in the following spreadsheet. ‘Data: Probability tables: Price: Priar probobitties: Tar [Comparten] severe] Wadersta Weak] Soo seo] 2: i eC a OE) Sales: ‘Conditional Probablitios: Tigh | Weaiom [tom SOO] 30,009] 230k Units 20k Units 029} 430k Units 20H Units 9) The scenario “moderate competition, sales of 30,000 units at a unit price of $30" has the largest total probability. Therefore, under the Maximum Likelihood Criterion, Charlotte should price the product at $30. Fan He Max imin enikeiior ut oachide thot Fira prict +t: Hite: rok uacts sales OM 30 is He wast case, g405 o eho ae Bool” . So . The maxiuvan off the three is: price O HSO, ad tot should be tt policy vader Hea marxinta crifedion 15-54co) Th three branches of the decision tree for the decision problem without additional information follow, fe aim SALES Sommpgamty mtg al / eters | ola SE gq ae, coc aac N z \ ia |) seemagomeny Se NN | = ae soompi _ cto a oo = m0 ae ae fare ee atin aos seat Scemmipgomems _ omen gos E-= oo scometpgonigme _ eo ga / Saag oes BE te oo jer ain exanpg enegy _ eet | The calculation of the expected revenue for a high price strategy is as follows (please refer to the decision tree). Each final outcome (“Sales”) is multiplied by its probability For example, the expected sales given severe competition (E[SulesICompetition)) equals: 0.2*50,000+0.25*30,000+0.55*20,000 = 1,425,000 15-55The remaining expected values are calculated accordingly. The decision tree indicates that the altemative with the maximum expected valve is the high price strategy. Therefore, Charlotte should price her product at $50. 15-56d) The decision tree for the decision problem with additional information follows ia wo scetions. The branches of the decisions are on the next page. Please note that the decision alternative “Expected Value w/o Information" zepresents the entire decision t1e2 of part (c). The calculations in this decision tree are performed in the Sane manner as in ait (c) Dectton ree wth ctor ine pasate Eetese ame sole tainecuee Is-5FOT fase “tire sows —— Sennen, s28 on STE oe “oon aces i. = win sates Septem _etanconntry tae / sta) saute me, gq spemen entree oe ee) sas sy conan omen aati Sum) SALES a ra ae cae mite, oo ee ae \ oo \ (ales) SALES \ sage come _ eta Since the expected value for the decision tree with additional (imperfect) information is less than that without information, Charlotte should not purchase the services of the market research company. 15-58