Question 3 Brompton Ltd has been reviewing its operations and is evaluating the introduction of a new product. There are several versions of the product that Brompton could sell the principle difference is the quality of the product. The higher the quality of the product the higher the selling price that can be charged by Brompton. In order to decide the selling price, consideration must be given to the expected economic conditions as this will affect demand: Probability Economic Activity Demand at Selling Price of 13 10,200 8,700 8,000 Demand at Selling Price of 15 7,500 6,700 5,500 Demand at Selling Price of 12 13,100 12,000 10,300 Poor Good Excellent 0.2 0.5 0.3 The cost involved in the production of one unit of the finished product is: Material Labour Variable overhead Royalty fee Requirement: 3.00 2.50 1.50 15% of selling price a) Prepare a table (see template set out below) showing the contribution that can be earned at each selling price and economic activity level: 15 13 12 Selling Price Economic Activity High Average Low b) Calculate the expected value that can be earned at each selling price. Recommend which selling price should be chosen based on expected value approach for the new product. c) Using the maximax approach what selling price should Brompton set for this new product. d) Using the maximin approach what selling price should Brompton set for this new product. e) Define a decision tree in the context of decision making and outline three limitations of this approach