Kroft Food Products is attempting to decide whether it should introduce a new line of salad dressings called Special Choices. The company can test market the salad dressings in selected geographic areas or bypass the test market and introduce the product nationally. The cost of the test market is $150,000. If the company conducts the test market, it must wait to see the results before deciding whether to introduce the salad dressings nationally. The probability of a positive test market result is estimated to be 0.6. Alternatively, the company can decide not to conduct the test market and go ahead and make the decision to introduce the dressings or not. If the salad dressings are introduced nationally and are a success, the company estimates that it will realize an annual profit of $1.6 million, whereas if the dressings fail, it will incur a loss of $700,000. The company believes the probability of success for the salad dressings is 0.50, if they are introduced without the test market. If the company does conduct the test market and it is positive, then the probability of successfully introducing the salad dressings increases to 0.8. If the test market is negative and the company introduces the salad dressings anyway, the probability of success drops to 0.30.Using decision tree analysis, determine whether the company should conduct the test market.Determine the expected value of sample information (EVSI) (i.e., the test market value) and the expected value of perfect information (EVPI). Kroft Food Products is attempting to decide whether it should introduce a new line of salad dressings called Special Choices. The company can test market the salad dressings in selected geographic areas or bypass the test market and introduce theproduct nationally. The cost of the test market is $150,000. If the company conducts the test market, it must wait to see the results before deciding whether to introduce the salad dressings nationally. The probability of a positive test market result isestimated to be 0.6. Alternatively, the company can decide not to conduct the test market and go ahead and make the decision to introduce the dressings or not. If the salad dressings are introduced nationally and are a success, the company estimatesthat it will realize an annual profit of $1.6 million, whereas if the dressings fail, it will incur a loss of $700,000. The company believes the probability of success for the salad dressings is 0.50, if they are introduced without the test market. If the companydoes conduct the test market and it is positive, then the probability of successfully introducing the salad dressings increases to 0.8. If the test market is negative and the company introduces the salad dressings anyway, the probability of success drops to0.30.Using decision tree analysis, determine whether the company should conduct the test market.Determine the expected value of sample information (EVSI) (i.e., the test market value) and the expected value of perfect information (EVPI).

The decision tree analysis is one of the methods of finding out and comparing the values of…

Kroft Food Products is attempting to decide whether it should introduce a new line of salad dressings called Special Choices. The company can test market the salad dressings in selected geographic areas or bypass the test market and introduce the product nationally. The cost of the test market is $150,000. If the company conducts the test market, it must wait to see the results before deciding whether to introduce the salad dressings nationally. The probability of a positive test market result is estimated to be 0.6. Alternatively, the company can decide not to conduct the test market and go ahead and make the decision to introduce the dressings or not. If the salad dressings are introduced nationally and are a success, the company estimates that it will realize an annual profit of $1.6 million, whereas if the dressings fail, it will incur a loss of $700,000. The company believes the probability of success for the salad dressings is 0.50, if they are introduced without the test market. If the company does conduct the test market and it is positive, then the probability of successfully introducing the salad dressings increases to 0.8. If the test market is negative and the company introduces the salad dressings anyway, the probability of success drops to 0.30. Using decision tree analysis, determine whether the company should conduct the test market. Determine the expected value of sample information (EVSI) (i.e., the test market value) and the expected value of perfect information (EVPI).

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 2P: Southland Corporation’s decision to produce a new line of recreational products resulted in the need...

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Kroft Food Products is attempting to decide whether it should introduce a new line of salad dressings called Special Choices. The company can test market the salad dressings in selected geographic areas or bypass the test market and introduce the product nationally. The cost of the test market is $150,000. If the company conducts the test market, it must wait to see the results before deciding whether to introduce the salad dressings nationally. The probability of a positive test market result is estimated to be 0.6. Alternatively, the company can decide not to conduct the test market and go ahead and make the decision to introduce the dressings or not. If the salad dressings are introduced nationally and are a success, the company estimates that it will realize an annual profit of $1.6 million, whereas if the dressings fail, it will incur a loss of $700,000. The company believes the probability of success for the salad dressings is 0.50, if they are introduced without the test market. If the company does conduct the test market and it is positive, then the probability of successfully introducing the salad dressings increases to 0.8. If the test market is negative and the company introduces the salad dressings anyway, the probability of success drops to 0.30.

Using decision tree analysis, determine whether the company should conduct the test market.

Determine the expected value of sample information (EVSI) (i.e., the test market value) and the expected value of perfect information (EVPI).

Kroft Food Products is attempting to decide whether it should introduce a new line of salad dressings called Special Choices. The company can test market the salad dressings in selected geographic areas or bypass the test market and introduce the
product nationally. The cost of the test market is $150,000. If the company conducts the test market, it must wait to see the results before deciding whether to introduce the salad dressings nationally. The probability of a positive test market result is
estimated to be 0.6. Alternatively, the company can decide not to conduct the test market and go ahead and make the decision to introduce the dressings or not. If the salad dressings are introduced nationally and are a success, the company estimates
that it will realize an annual profit of $1.6 million, whereas if the dressings fail, it will incur a loss of $700,000. The company believes the probability of success for the salad dressings is 0.50, if they are introduced without the test market. If the company
does conduct the test market and it is positive, then the probability of successfully introducing the salad dressings increases to 0.8. If the test market is negative and the company introduces the salad dressings anyway, the probability of success drops to
0.30.
Using decision tree analysis, determine whether the company should conduct the test market.
Determine the expected value of sample information (EVSI) (i.e., the test market value) and the expected value of perfect information (EVPI).

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