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You are asked to use the information provided in the following matrix to help decide on the preferred price for men's sneakers in 2023. The payoffs indicate the forecast change in revenue (in €000s) from men's sneaker sales next year. UK Economic Performance (2023) Options Recession Stagnation Growth Increase Price -100 110 600 Q Reduce Price 100 250 200 Price Unchanged 50 95 420 1.1 Which option would you advise, based on the following criteria? (i) Maximax (ii) Maximin (iii) Minimax Regret (6 marks in total) Q1: Decision Making under Risk and Uncertainty Jess is getting increasingly concerned that Ecosneak may be losing its competitive advantage. She has discovered that new competitors have been entering the quality and customer intimacy segments and this has been putting pressure on the company's market shares in both men's and women's markets. She tried an experiment in 2022 to examine the impact of price changes on sales revenues; she increased the price of men's sneakers by €10 per pair, while cutting the price of women's sneakers by the same amount. Purchase and distribution costs were left unchanged. Unfortunately, this seems to have caused a drop in net profits from the previous year but, undeterred, Jess wants to examine three different pricing options for men's sneakers in 2023 despite the current economic uncertainty and the looming threat of recession. You are asked to use the information provided in the following matrix to help decide on the preferred price for men's sneakers in 2023. The payoffs indicate the forecast change in revenue (in €000s) from men's sneaker sales next year. UK Economic Performance (2023) Options Recession Stagnation Growth Increase Price -100 110 600 Q Reduce Price 100 250 200 Price Unchanged 50 95 420 1.1 Which option would you advise, based on the following criteria? (i) Maximax (ii) Maximin (iii) Minimax Regret (6 marks in total) Q1: Decision Making under Risk and Uncertainty Jess is getting increasingly concerned that Ecosneak may be losing its competitive advantage. She has discovered that new competitors have been entering the quality and customer intimacy segments and this has been putting pressure on the company's market shares in both men's and women's markets. She tried an experiment in 2022 to examine the impact of price changes on sales revenues; she increased the price of men's sneakers by €10 per pair, while cutting the price of women's sneakers by the same amount. Purchase and distribution costs were left unchanged. Unfortunately, this seems to have caused a drop in net profits from the previous year but, undeterred, Jess wants to examine three different pricing options for men's sneakers in 2023 despite the current economic uncertainty and the looming threat of recession.
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Based on the payoff matrix provided we compute the maximum payoff for each decision alternative State of Nature 1 State of Nature 2 State of Nature 3 MAX Alternative 1 100 110 600 600 Alternative 2 10... View the full answer
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Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins
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