Question $8$: Decision Tree

A company is developing a new product and has two design options to consider:

Design Option A: A simpler, less innovative product design that costs $$2$ million to develop. There is a $70\%$ chance that the product will perform well in the market, leading to profits of $$6$ million. If the product performs poorly $(30\%$ chance$),$ it will generate profits of only $$1$ million.

Design Option B: A more complex, highly innovative product design that costs $$4$ million to develop. If the product performs well $(60\%$ chance$),$ it will yield profits of $$12$ million. If it performs poorly $(40\%$ chance$),$ it will generate profits of $$2$ million.

Question $8-1$ Design Option A

Calculate the expected monetary value $($EMV$)$ for Design Option A$.$

Question $8-2$ Design Option B

Calculate the expected monetary value $($EMV$)$ for Design Option B$.$

Question $8-3$

Based on the expected monetary value $($EMV$),$ which design option should the company choose?