XY has developed two new products, Product X and Product Y, but has insufficient resources to launch both products. The success of the products will depend on the extent of competitor reaction. There is a 20 percent chance that competitors will take no action, a 50 percent chance that they will launch a similar product and a 30 percent chance that they will launch a better product.The profit/loss that will be earned by each of the products depending on the extent of competitor reaction is as follows:

Another option for XY would be to launch neither product. If it chooses this course of action there is a 60 percent chance that competitors will take no action and there will be no effect on the company?s profit. There is a 40 percent chance that competitors will launch a new product and company profits will reduce by $100 000.

Required:Demonstrate, using a decision tree and based on expected value, the best course of action for the company.

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Competitor reaction Product X Product Y $540 000 $620000 No action Launch a similar product Launch a better product $320000 ($150000) $380 000 ($200 000)