A wily marketing director must decide among four alternatives for a new marketing campaign.She ascertains that the probability of high demand is 0.45 and the probability of low demand is 0.55.What is the best choice with the payoffs shown in the tree?

A) Alternative A
B) Alternative B
C) Alternative C
D) Alternative D

Question

A wily marketing director must decide among four alternatives for a new marketing campaign.She ascertains that the probability of high demand is 0.45 and the probability of low demand is 0.55.What is the best choice with the payoffs shown in the tree?

A) Alternative A 
B) Alternative B 
C) Alternative C 
D) Alternative D

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the expected value of each alternative.

For Alternative A: 
Expected Value = (0.45 x 200) + (0.55 x (-100)) = 90 - 55 = 35

For Alternative B: 
Expected Value = (0.45 x 500) + (0.55 x (-150)) = 225 - 82.5 = 142.5

For Alternative C: 
Expected Value = (0.45 x 350) + (0.55 x 50) = 157.5 + 27.5 = 185

For Alternative D: 
Expected Value = (0.45 x 0) + (0.55 x 200) = 0 + 110 = 110

Therefore, the best choice is Alternative C with an expected value of $185.

A Wily Marketing Director Must Decide Among Four Alternatives for a New