The Acme Company must decide whether to market a new product. As in many new-product situations,...

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The Acme Company must decide whether to market a new product. As in many new-product situations, there is considerable uncertainty about the eventual success of the product. The product is currently part way through the development process, and some fixed development costs have already been incurred. If the company decides to continue development and then market the product, there will be additional fixed costs, and they are estimated to be $6 million. If the product is marketed, its unit margin (selling price minus variable cost) will be $18. Acme classifies the possible market results as "great," "fair," and "awful," and it estimates the probabilities of these outcomes to be 0.45, 0.35, and 0.20, respectively. Finally, the company estimates that the corresponding sales volumes (in thousands of units sold) from these three outcomes are 600, 300, and 90, respectively. Assuming that Acme is an EMV maximizer, should it finish development and then market the product, or should it stop development at this point and abandon the product? Use the following elements of decision analysis subheadings as you compose your post: Problem identification Possible decisions Possible outcomes Probabilities of outcomes Payoffs and Costs Decision Criterion Create a decision tree illustrating the elements of decision analysis Refer to Figures 6.5 and 6.6. Figure 6.5 Decision Tree for New Product Model Figure 6.6 Equivalent Decision Tree 1074 1074 Market product -6000 Abandon product Market product -6000 Abandon product Great 600(18) 10800 0.45 7074 Fair 0.35 300(18) 5400 Awful 0.20 90(18)=1620 Great 0.45 600(18)-6000 4800 1074 Fair 0.35 300(18)-6000=-600 Awful 0.20 90(18)-6000--4380 The Acme Company must decide whether to market a new product. As in many new-product situations, there is considerable uncertainty about the eventual success of the product. The product is currently part way through the development process, and some fixed development costs have already been incurred. If the company decides to continue development and then market the product, there will be additional fixed costs, and they are estimated to be $6 million. If the product is marketed, its unit margin (selling price minus variable cost) will be $18. Acme classifies the possible market results as "great," "fair," and "awful," and it estimates the probabilities of these outcomes to be 0.45, 0.35, and 0.20, respectively. Finally, the company estimates that the corresponding sales volumes (in thousands of units sold) from these three outcomes are 600, 300, and 90, respectively. Assuming that Acme is an EMV maximizer, should it finish development and then market the product, or should it stop development at this point and abandon the product? Use the following elements of decision analysis subheadings as you compose your post: Problem identification Possible decisions Possible outcomes Probabilities of outcomes Payoffs and Costs Decision Criterion Create a decision tree illustrating the elements of decision analysis Refer to Figures 6.5 and 6.6. Figure 6.5 Decision Tree for New Product Model Figure 6.6 Equivalent Decision Tree 1074 1074 Market product -6000 Abandon product Market product -6000 Abandon product Great 600(18) 10800 0.45 7074 Fair 0.35 300(18) 5400 Awful 0.20 90(18)=1620 Great 0.45 600(18)-6000 4800 1074 Fair 0.35 300(18)-6000=-600 Awful 0.20 90(18)-6000--4380