Problem 1 (20 Points) Newlab has come up with a new product in its research lab. The technical success is clear, but as with any new product the commercial success is risky. Because of this, they would sometimes test-market a product first, and then make a decision about national marketing after the test market results had come in; at other times they would proceed directly to national marketing. On some occasions, they would abandon the product without even test-marketing it. The test-marketing would cost about $120,000. If successful (probability 0.4) there would be revenues of $40,000; if unsuccessful the revenues would only be $10,000. Should the test market be successful, a follow-up national campaign at a cost of $500,000 would have a 70% chance of success with a revenue of $1,800,000, otherwise it would be a failure with a revenue of $150,000. Should the test market be unsuccessful, a follow-up national campaign would have only a 0.2 chance of success with the same cost, and the same revenues for success and failure). A national campaign not preceded by a test campaign would have a 45% chance of success. It would cost $600,000, and would produce a revenue of $1,900,000 if successful, but only $175,000 otherwise. (a) Draw the decision tree that starts with the alternatives that Newlab has and that include the events that would occur (i.e., successful or unsuccessful test market, success or failure in the campaign). Use payoff nodes where appropriate and probabilities. (10 points) (b) State the recommendation for Newlab that would maximize their profit. (c) If the $600,000 figure in the last paragraph in bold were changed to $800,000, what would be the revised recommendation? (5 points)