The Miramar Company is going to introduce one of three new high-end razors: X-100, Y-250, or Z-500. The market conditions (favorable, stable, or unfavorable) will determine the profit or loss the company realizes, as shown in the payoff table below. The probability of favorable market conditions is estimated to be 0.2, the probability of stable market conditions is estimated to be 0.7, and the probability of unfavorable market conditions is estimated to be 0.1. Market Conditions Product Favorable (0.2) Stable (0.7) Unfavorable (0.1) X-100 $120,000 $70,000 $ -30,000 Y-250 60,000 40,000 20,000 Z-500 35,000 30,000 30,000 a. Using the information given, construct a decision tree for this problem. Determine the expected monetary value (EMV) of each product and specify the optimal decision strategy. b. Compute the expected value of perfect information (EVPI) for this decision. c. Miramar is considering contracting with a market research firm to do a survey to determine future market conditions. The results of the survey will indicate either positive or negative market conditions. There is a 0.60 probability of a positive report, given favorable conditions; a 0.30 probability of a positive report, given stable conditions; and a 0.10 probability of a positive report, given unfavorable conditions. There is a 0.90 probability of a negative report, given unfavorable conditions; a 0.70 probability, given stable conditions; and a 0.40 probability, given favorable conditions. Using decision tree analysis and posterior probabilities, determine the decision strategy the company should follow and the expected value of the strategy. d. What is the maximum amount the company should pay the market research firm for the survey results? That is, what is the expected value of survey information (EVSI)?

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