A consumer electronics company is planning to introduce a new device. After careful consideration of costs, (e.g., there is a fixed cost of $5 million for developing the item), the projected state of the economy, etc., the marketing manager came up with the following payoff table (in $millions)

	Courses of action
Event	Market item	Do not market item
Introduction successful	$50	-$5
Introduction not successful	-$40	-$5

A. What are the decisions?

B. What are the states of nature?

C. What decision criterion would a conservative decision-maker make?

D. Use your answer in c. to determine what decision should be made in this case. Show all work to justify your answer.

E. What decision criterion would an optimistic decision-maker make?

F. Use your answer in e. to determine what decision should be made in this case. Show all work to justify your answer.

G. Draw a decision tree for this problem. Assume that the probability that the introduction is successful is 0.4.

H. Use your decision tree to determine which decision should be chosen via the EV method.

I. What is the expected value WITHOUT perfect information?

J. What is the expected value WITH perfect information?

K. What is the expected value OF perfect information (EVPI)?

L. Sketch the risk profiles for the two decisions. Which is the riskier decision?

M. Perform a sensitivity analysis for your analysis so far: Let p be the probability that the introduction is successful. Draw the graph showing how the EVs for each decision change with the value of p.

N. For which values of p does your original decision from part h hold? (Be explicit – give the changeover point by solving the appropriate equation, not just estimating it from the graph).