Question 4: Expected Value of Sample Information Assume that Tabuk Housing Corporation's management, in Question #1, is considering a market research study designed to learn more about potential market acceptance of the housing project. Management anticipates that the market research study will provide one of the following two results: 1. Favorable report: A significant number of the individuals' contacted express interest in the housing project. 2. Unfavorable report: Very few of the individuals' contacted express interest in the housing project. If the market research study is undertaken: P(Favorable report)=0.9 P(Unfavorable report) = 0.1 If the market research report is favorable: P (Strong demand given a favorable report) = 0.7 P (Moderate demand given a favorable report) = 0.2 P (Weak demand given a favorable report)=0.1 If the market research report is unfavorable: P (Strong demand given a unfavorable report) = 0.2 P (Moderate demand given a unfavorable report) = 0.35 P (Weak demand given a unfavorable report) = 0.45 If the market research report is not undertaken, the prior probabilities are applicable: P (Strong demand) = 0.5 P (Moderate demand) = 0.3 P (Weak demand)=0.2 Answer the Following Questions: A) Draw the Decision Tree showing the probabilities and payoffs. B) Calculate the expected values of each decision. C) Select the optimal decision strategy if the market research is favorable. D) Select the optimal decision strategy if the market research is unfavorable. E) Find the overall expected value for the optimal decision strategy. F) Construct a risk profile for the optimal decision strategy. G) How much are you willing to pay for the market research?

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter6: Target Markets: Segmentation And Evaluation

Section: Chapter Questions

Problem 17DRQ: Under what conditions might a firm use multiple forecasting methods?

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Transcribed Image Text:Question 4: Expected Value of Sample Information Assume that Tabuk Housing Corporation's management, in Question #1, is considering a market research study designed to learn more about potential market acceptance of the housing project. Management anticipates that the market research study will provide one of the following two results: 1. Favorable report: A significant number of the individuals' contacted express interest in the housing project. 2. Unfavorable report: Very few of the individuals' contacted express interest in the housing project. If the market research study is undertaken: P(Favorable report)=0.9 P(Unfavorable report) = 0.1 If the market research report is favorable: P (Strong demand given a favorable report) = 0.7 P (Moderate demand given a favorable report) = 0.2 P (Weak demand given a favorable report)=0.1 If the market research report is unfavorable: P (Strong demand given a unfavorable report) = 0.2 P (Moderate demand given a unfavorable report) = 0.35 P (Weak demand given a unfavorable report) = 0.45 If the market research report is not undertaken, the prior probabilities are applicable: P (Strong demand) = 0.5 P (Moderate demand) = 0.3 P (Weak demand)=0.2 Answer the Following Questions: A) Draw the Decision Tree showing the probabilities and payoffs. B) Calculate the expected values of each decision. C) Select the optimal decision strategy if the market research is favorable. D) Select the optimal decision strategy if the market research is unfavorable. E) Find the overall expected value for the optimal decision strategy. F) Construct a risk profile for the optimal decision strategy. G) How much are you willing to pay for the market research?

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