A company has developed a new product in itsR&D laboratory. The company has the option of setting up production facility to market this product straightaway. If the product is successful, then over the three years expected product life, thereturns will be lakh with a probability of If the market does not respond favourably, then the returns will be only lakh with probability of The company is considering whether it should test market this product by building a small pilot plant. The chance that the test market will yield favourable response is If the test market gives favourable response, then the chance of product being successful improves to If the test market gives poor response, then the chance of success of the product in the total market is only As before, the returnsfrom a successful market will be lakh and only lakh from an unsuccessful market.The installation cost to produce for the total market is lakh and the cost of test marketingpilot plant is lakh.

Using decisiontree analysis, draw a decisiontree diagram, carry out necessary analysis to determine the optimal decision. 

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To determine the optimal decision using decisiontree analysis we will construct a decision tree to r... View the full answer