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Prob 1: Techware Incorporated is considering the introduction of two new software products to the market. In particular, the company has four options regarding these two proposed products: introduce...

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Prob 1: Techware Incorporated is considering the introduction of two new software products to the market. In particular, the company has four options regarding these two proposed products: introduce neither product, introduce product 1 only, introduce product 2 only, or introduce both products. Research and development costs for products 1 and 2 are $180,000 and $160,000, respectively. Note that the first option entails no costs because research and development efforts have not yet begun. The success of these software products depends on the trend of the national economy in the coming year and on the consumers' reaction to these products. The company's revenues earned by introducing product 1 only, product 2 only, or both products in various states of the national economy are given in the following table: Decision / Trend in National Economy Strong (s1) Fair (s2) Weak (s3) Introduce neither product (d1) $0 $0 $0 Introduce product 1 only (d2) Introduce product 2 only (d3) $260,000 | $120,000 $230,000 | $100,000 $380,000 | $200,000 $520,000 $420,000 Introduce both products (d4) $820,000 The probabilities of observing a strong, fair, and weak trend in the national economy in the coming year are 0.30, 0.50, and 0.20, respectively. a. Formulate a payoff table that specifies Techware's profit (in $) for each possible decision and each outcome with respect to the trend in the national economy. b. Identify the strategy that maximizes Techware's expected profit. c. Suppose that P(s1)= p, P(s2) is unchanged, find a condition of p that would change the optimal strategy in part (b).
Extracted text: Prob 1: Techware Incorporated is considering the introduction of two new software products to the market. In particular, the company has four options regarding these two proposed products: introduce neither product, introduce product 1 only, introduce product 2 only, or introduce both products. Research and development costs for products 1 and 2 are $180,000 and $160,000, respectively. Note that the first option entails no costs because research and development efforts have not yet begun. The success of these software products depends on the trend of the national economy in the coming year and on the consumers' reaction to these products. The company's revenues earned by introducing product 1 only, product 2 only, or both products in various states of the national economy are given in the following table: Decision / Trend in National Economy Strong (s1) Fair (s2) Weak (s3) Introduce neither product (d1) $0 $0 $0 Introduce product 1 only (d2) Introduce product 2 only (d3) $260,000 | $120,000 $230,000 | $100,000 $380,000 | $200,000 $520,000 $420,000 Introduce both products (d4) $820,000 The probabilities of observing a strong, fair, and weak trend in the national economy in the coming year are 0.30, 0.50, and 0.20, respectively. a. Formulate a payoff table that specifies Techware's profit (in $) for each possible decision and each outcome with respect to the trend in the national economy. b. Identify the strategy that maximizes Techware's expected profit. c. Suppose that P(s1)= p, P(s2) is unchanged, find a condition of p that would change the optimal strategy in part (b).
Answered 116 days After Jun 04, 2022

Solution

Rajeswari answered on Sep 29 2022
56 Votes
Sheet1
                            Techware incorporated
                            Pay off table
                            Decision    Strong (s1)    Prob=0.3    s1*prob    Fair(s2)    Prob=0.5    s2*prob    Weak(s3)    Prob=0.2    s3*prob    Total    cost    Net...
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