Consider the information given in problem 27 for Bees Candy. Suppose Bees management believes that the following probabilities hold:
a. Using the expected value criterion, determine whether the company should introduce the lower- calorie candy assortment.
Bees is considering hiring a market consulting firm to analyze people’s attitudes toward lower- calorie candy. The market research firm will report back to Bees management whether attitudes are favorable or unfavorable. Management believes that the following conditional probabilities hold: P(favorable attitude|Sales = 70,000 pounds) = .90 P(favorable attitude| Sales = 40,000 pounds) = .60 Pffavorable attitudejSales = 10,000 pounds) = .20
b. If the survey is performed and results in a favorable attitude toward lower-calorie candy, would you recommend that the candy be produced?
c. Determine the expected value and efficiency of this sample information.
27. Bees Candy Company must decide whether or not to introduce a new lower-calorie candy assortment for Christmas. Management feels that if it introduces the candy, it will earn a profit of $150,000 if sales are 70,000 pounds and a profit of $50,000 if sales are 40,000 pounds. It will lose $100,000 if sales are only 10,000 pounds. If Bees does not introduce the lower-calorie candy assortment, it believes it will lose $20,000 due to lost sales.
a. Construct a payoff table for this problem.
b. Should Bees introduce the candy if management is conservative?
c. Construct a regret table for this problem. d. If Bees management uses the minimax regret criterion, should the new candy be introduced?