# Assuming that no marketing research study will be taken, which model should Hoopla feature to maximize expected contribution?

**Assuming that no marketing research study will be taken, which model should Hoopla feature to maximize expected contribution?**

The marketing manager of Ace Widgets must choose one of three models to feature in the new product sweepstakes: Dooper Super, Double Dipper, or Triple Dipple. The following manufacturing cost and price data apply.

UNIT COST | ||||

ITEM | SET UP | LABOR | MATERIAL | PRICE |

Dooper Super | $ 45,000 | $ 2.00 | $ 3.00 | $ 10.00 |

Double Dipper | 60,000 | 1.80 | 2.90 | 11.00 |

Triple Dipple | 65,000 | 1.50 | 2.50 | 10.60 |

Once production has been set up, the unit costs apply regardless of volume. Production volume will be linked to market demand, so that no unsold items will be made. For planning purposes, the manager assumes that the demand will be at one of the following levels: 10,000 (.3 probability), 15,000 (.4), or 20,000 (.3).

A marketing research study may be used. Either a positive or a negative result is possible. Based on past tests, the following conditional result probabilities apply.

CONDITIONAL PROBABILITY | ||

GIVEN DEMAND | Positive | Negative |

10,000 | .5 | .5 |

15,000 | .6 | .4 |

20,000 | .8 | .2 |

1.Assuming that no marketing research study will be taken, which model should Hoopla feature to maximize expected contribution?

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2.Determine the expected value of perfect information. Discuss whether or not Hoopla should seek further experimental information on the demand for the new product.

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3.Consider the marketing research study. Find the posterior probabilities with this information.

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4.Compute (1) the EVEI (or EVSI) and (2) the expected net gain of experiment when the marketing research has a cost of $20.

5.Suppose that a demand forecast experiment may be substituted for the marketing research study. The following probabilities apply.

CONDITIONAL PROBABILITY | |||

GIVEN DEMAND | Weak | Moderate | Strong |

10,000 | .6 | .3 | .1 |

15,000 | .3 | .5 | .2 |

20,000 | .1 | .2 | .7 |

Find the posterior probabilities with this information.

6.Compute (1) the EVEI and (2) the expected net gain of experiment when the demand forecast experiment has a cost of $ 50.

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7.Time will only permit Hoopla to use on source of information. To maximize expected payoff, should Hoopla request the marketing research study or the demand forecast experiment?

**Assuming that no marketing research study will be taken, which model should Hoopla feature to maximize expected contribution?
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