The marketing department of a soft drink company wishes to determine the best investment level (Low, High) for introducing a new crystal-clear drink. The payoffs depending on market share for the two decision alternatives is given below: Investment Level < 1% Low High Market Share 1% -4% 300,000 400,000 -400,000 300,000 > 4% 500,000 3,000,000 The probability for a market share less than 1% is 0.3 and the probability for a market share more than 4% is 0.2. a) To minimize the maximum regret, which investment level should the department choose? b) To maximize expected values, which investment level should the department choose? c) What is the maximum amount the department should spend to get more information about the possible market share?

The marketing department of a soft drink company wishes to determine the best investment level (Low, High) for introducing a new crystal-clear drink. The payoffs depending on market share for the two decision alternatives is given below: Investment Level < 1% Low High Market Share 1% -4% 300,000 400,000 -400,000 300,000 > 4% 500,000 3,000,000 The probability for a market share less than 1% is 0.3 and the probability for a market share more than 4% is 0.2. a) To minimize the maximum regret, which investment level should the department choose? b) To maximize expected values, which investment level should the department choose? c) What is the maximum amount the department should spend to get more information about the possible market share?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter2: Mathematics For Microeconomics

Section: Chapter Questions

Problem 2.16P

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