Question: A sugar supplier was considering changing its packaging from a bag to a box. The increased cost would be 0.5 p each, which would reduce

A sugar supplier was considering changing its packaging from a bag to a box. The increased cost would be 0.5 p each, which would reduce the profit per pack from 5.5 p to 5.0 p. However, the box would be more convenient to the customer and might generate extra sales. Management considered the probability of a 20% increase in sales to be 0.6 . (The alternative is no change in sales.) Their planning horizon was two years, during which they might currently expect to sell 1 million packs. Draw a decision tree to evaluate the decision to change packaging. What are the expected monetary values of changing to the box or remaining with the bag?

EMV for bag:

EMV for box:

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