P471-05

Acme single-stage new product decision

Decision 1: Continue development and market the new product

Fixed cost
$6,000

Unit margin
$18

Market
Probability
Sales volume
Net revenue

Great
0.45
600
$10,800

Fair
0.35
300
$5,400

Awful
0.20
90
$1,620

EMV
$1,074

Decision 2: Stop development and abandon product

No payoffs, no costs, no uncertainty

EMV
$0

1. Sensitivity to probability in cell B8 (Use one-way data table)

2. Explain the data table results.

All monetary values (except the unit margin in cell B5) are in $1000s, and all sales volumes are in 1000s of units.

P502-39

Automobile inspections

Given Probabilities:
Probability

P(inspected car has problems)

P(inspected car has no problems)

P(no problem found | inspected car has problems)

P(problem found | inspected car has problems)

P(no problem found | inspected car has no problems)

P(problem found | inspected car has no problems)

1. The goal is to find P(inspected car has problems | no problem was found).

P(inspected car has problems | no problem was found) =

P(inspected car has problems AND no problem found)/P(no problem found) =

P(no problem found | inspected car has problems)*P(inspected car has problems)/

(P(no problem found | inspected car has problems)*P(inspected car has problems) +

P(no problem found | inspected car has no problems)*P(inspected car has no problems))

which is equal to (results)

2. Provide a brief clarification discussion about your results.