Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions. The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions: Product Code Market Conditions Favorable P = 0.2 Neutral P = 0.7 Unfavorable P = 0.1 Wren $120,000 $70,000 ($30,000) Hawk $60,000 $40,000 $20,000 Nightingale $35,000 $30,000 $30,000 Part 1 Instructions: Compute the expected value for each alternative. What is the best option for the company? Develop the opportunity loss table and compute the expected opportunity loss for each product. Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions.
The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions:
|
Product Code |
Market Conditions |
||
|
Favorable P = 0.2 |
Neutral P = 0.7 |
Unfavorable P = 0.1 |
|
|
Wren |
$120,000 |
$70,000 |
($30,000) |
|
Hawk |
$60,000 |
$40,000 |
$20,000 |
|
Nightingale |
$35,000 |
$30,000 |
$30,000 |
Part 1 Instructions:
- Compute the
expected value for each alternative. What is the best option for the company? - Develop the opportunity loss table and compute the expected opportunity loss for each product.
- Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.
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