QuestionQuestion

The Super Soda Company must decide whether or not to introduce a new diet soft drink. Management feels that if it does introduce the diet soda it will yield a profit of $1 million if sales are around 100 million, a profit of $200,000 if sales are around 50 million, or it will lose $2 million if sales are only around 1 million bottles. If Super Soda does not market the new diet soda, it will suffer a loss of $400,000.
a. Construct a payoff table for this problem.
b. Construct a regret table for this problem.
c. Should Super Soda introduce the soda if the company: (1) is conservative; (2) is optimistic; (3) wants to minimize its maximum disappointment?
d. An internal marketing research study has found P(100 million in sales) = 1/3; P(50 million in sales) = 1/2; P(1 million in sales) = 1/6. Should Super Cola introduce the new diet soda?
e. A consulting firm can perform a more thorough study for $275,000. Should management have this study performed?

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Answer c)
(1) If the decision maker is conservative, the approach would be to maximize the minimum expected profits. If the decision maker does not market soda, the lowest expected payoff is (-$400,000). If the decision maker markets the soda, the lowest expected payoff is (-$2,000,000). Therefore, the decision would be NOT to market soda under conservative approach...
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