# The Super Soda Company must decide whether or not to introduce a ne...

## Question

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?

## Solution Preview

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(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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