A development corporation purchased land that will be the site of a new luxury condominium complex. Management is considering a six month market research study designed to learn more about potential market acceptance of the condominium project. Management anticipates that, if conducted, the market research study will provide one of the following two results. Favorable report (F): A significant number of the individuals contacted express interest in purchasing a condominium. Unfavorable report (U): Very few of the individuals contacted express interest in purchasing a condominium. After deciding whether to conduct the market research study, they have the following two decision alternatives. d1 = a small complex with 30 condominiums d2 = a medium complex with 60 condominiums Following this, a chance event concerning the demand for the condominiums has two states of nature. s1 = strong demand for the condominiums s2 = weak demand for the condominiums The payoff table showing profit is as follows. (b) Use the following probabilities. P(F) = 0.59 P(U) = 0.41 P(s1|F) = 0.58 P(s2|F) = 0.42 P(s1|U) = 0.17 P(s2|U) = 0.83 P(s1) = 0.41 P(s2) = 0.59 What is the optimal decision strategy? Conduct the market research. If it is favorable, choose decision d1. If it is unfavorable, choose decision d2.Conduct the market research. If it is favorable, choose decision d2. If it is unfavorable, choose decision d1. Don't conduct the market research. Choose decision d1.Don't conduct the market research. Choose decision d2.
A development corporation purchased land that will be the site of a new luxury condominium complex. Management is considering a six month market research study designed to learn more about potential market acceptance of the condominium project. Management anticipates that, if conducted, the market research study will provide one of the following two results. Favorable report (F): A significant number of the individuals contacted express interest in purchasing a condominium. Unfavorable report (U): Very few of the individuals contacted express interest in purchasing a condominium. After deciding whether to conduct the market research study, they have the following two decision alternatives. d1 = a small complex with 30 condominiums d2 = a medium complex with 60 condominiums Following this, a chance event concerning the demand for the condominiums has two states of nature. s1 = strong demand for the condominiums s2 = weak demand for the condominiums The payoff table showing profit is as follows. (b) Use the following probabilities. P(F) = 0.59 P(U) = 0.41 P(s1|F) = 0.58 P(s2|F) = 0.42 P(s1|U) = 0.17 P(s2|U) = 0.83 P(s1) = 0.41 P(s2) = 0.59 What is the optimal decision strategy? Conduct the market research. If it is favorable, choose decision d1. If it is unfavorable, choose decision d2.Conduct the market research. If it is favorable, choose decision d2. If it is unfavorable, choose decision d1. Don't conduct the market research. Choose decision d1.Don't conduct the market research. Choose decision d2.
Chapter6: Target Markets: Segmentation And Evaluation
Section: Chapter Questions
Problem 1SC
Related questions
Question
A development corporation purchased land that will be the site of a new luxury condominium complex. Management is considering a six month market research study designed to learn more about potential market acceptance of the condominium project. Management anticipates that, if conducted, the market research study will provide one of the following two results.
- Favorable report (F): A significant number of the individuals contacted express interest in purchasing a condominium.
- Unfavorable report (U): Very few of the individuals contacted express interest in purchasing a condominium.
After deciding whether to conduct the market research study, they have the following two decision alternatives.
| d1 | = | a small complex with 30 condominiums |
| d2 | = | a medium complex with 60 condominiums |
Following this, a chance event concerning the demand for the condominiums has two states of nature.
| s1 | = | strong demand for the condominiums |
| s2 | = | weak demand for the condominiums |
The payoff table showing profit is as follows.
(b)
Use the following probabilities.
-
P(F) = 0.59
-
P(U) = 0.41
-
P(s1|F) = 0.58
-
P(s2|F) = 0.42
-
P(s1|U) = 0.17
-
P(s2|U) = 0.83
-
P(s1) = 0.41
-
P(s2) = 0.59
What is the optimal decision strategy?
Conduct the market research. If it is favorable, choose decision d1. If it is unfavorable, choose decision d2.Conduct the market research. If it is favorable, choose decision d2. If it is unfavorable, choose decision d1. Don't conduct the market research. Choose decision d1.Don't conduct the market research. Choose decision d2.
Transcribed Image Text:States of Nature
Decision
Alternative
52
400
1200
d2
1600
800
(a) Show the decision tree.
Decision Tree
Description
6.
52
F
3
Market
Research
2
4
10
No Market
Research
11
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