Product introduction expected value. An analyst for the company in Exercise 12 thinks the probabilities of high, moderate, and low sales are 0.2, 0.5, and 0.3, respectively. In this case calculate the expected value of each action. Which is the best action in this case?

Exercise 12

Product introduction. A small company has the technology to develop a new personal data assistant (PDA), but it worries about sales in the crowded market. They estimate that it will cost $600,000 to develop, launch, and market the product. Analysts have produced revenue estimates for three scenarios: If sales are high, they will sell $1.2M worth of the phones; if sales are moderate, they will sell $800,000 worth; and if sales are low, they will sell only $300,000 worth. Construct a payoff table for this set of actions using net profit as the “payoff.” Don’t forget the possible action of doing nothing