# Question

A product manager at Clean & Brite (C&B) wants to determine whether her company should market a new brand of toothpaste. If this new product succeeds in the marketplace, C&B estimates that it could earn $1,800,000 in future profits from the sale of the new toothpaste. If this new product fails, however, the company expects that it could lose approximately $750,000. If C&B chooses not to market this new brand, the product manager believes that there would be little, if any, impact on the profits earned through sales of C&B’s other products. The manager has estimated that the new toothpaste brand will succeed with probability 0.50.

Before making her decision regarding this toothpaste product, the manager can spend $75,000 on a market research study. Based on similar studies with past products, C&B believes that the study will predict a successful product; given that product would actually be a success, with probability 0.75. It also believes that the study will predict a failure, given that the product would actually be a failure, with probability 0.65.

a. To maximize expected profit, what strategy should the C&B product manager follow?

b. Calculate and interpret EVSI for this decision problem.

c. Calculate and interpret EVPI for this decision problem.

Before making her decision regarding this toothpaste product, the manager can spend $75,000 on a market research study. Based on similar studies with past products, C&B believes that the study will predict a successful product; given that product would actually be a success, with probability 0.75. It also believes that the study will predict a failure, given that the product would actually be a failure, with probability 0.65.

a. To maximize expected profit, what strategy should the C&B product manager follow?

b. Calculate and interpret EVSI for this decision problem.

c. Calculate and interpret EVPI for this decision problem.

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