# Question: A product manager at Clean Brite C B wants to

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.

**View Solution:**## Answer to relevant Questions

Ford is going to produce a new vehicle, the Pioneer, and wants to determine the amount of annual capacity it should build. Ford’s goal is to maximize the profit from this vehicle over the next 10 years. Each vehicle will ...Consider again the bank’s customer loan decision problem in Problem 51. Suppose now that the bank’s utility function of profit x (in dollars) is U(x) = 1 – e-x/500000. Find the strategy that maximizes the bank’s ...A home appliance company is interested in marketing an innovative new product. The company must decide whether to manufacture this product in house or employ a subcontractor to manufacture it. The file P06_69.xlsx contains ...A homeowner wants to decide whether he should install an electronic heat pump in his home. Given that the cost of installing a new heat pump is fairly large, the homeowner wants to do so only if he can count on being able to ...The file P02_35.xlsx contains data from a survey of 500 randomly selected households.a. Suppose you decide to generate a systematic random sample of size 25 from this population of data. How many such samples are there? What ...Post your question