Toys Everyday must decide which course of action to follow in promoting a new Gizmo toyit has developed. Initially management must decide whether to market this toy or to conduct atest marketing programme. After test marketing the Gizmo, management must decidewhether to abandon it or distribute it nationally.A national success will (NS) will increase profits by $1,000,000 and a failure (NF) willreduce profits by $200,000. Abandoning the product will not affect profits. The testmarketing will cost the company a further $20,000.Decision Alternatives NS(NATIONAL | NF(NATIONAL FAILURE)SUCCESS)Market1000,000($200,000)AbandonPrior ProbabilitiesP(S) = 0.45P(F) = .55Conditional probability for a given state of nature where test results are either Favourable (F)P(U|NS) = 0.12;or negative (U): P(F]NS) = 0.88;P(U|NF) = 0.82P(F|NF) = 0.18;After you have computed the revised probabilities round to two decimal placesa) Construct the appropriate decision tree to help Toys make the appropriate decisions.This tree must be constructed in logical prder with labels and net payoffsIt also includes the revised probabilities (b) Fold back the decision treeto determine the dest strategy for Toys; you muststate this strategyc) What is the expected value of sample information(EVSI)- the most that should be paidto the marketing firm for the test?d) Calculate the expected value of perfect iniuimation (EVPI)- the most that should bepaid to an expert for perfect prediction of the uncertain outcomesWhat is the final expected profit?

Question

Accepted Answer

*Answer:

st ourable (F)