FineHair is developing a new product to promote hair growth in cases of male pattern baldness. If FineHair markets the new product and it is successful, the company will earn $500,000 in additional...

FineHair is developing a new product to promote hair growth in cases of male pattern baldness. If FineHair markets the new product and it is successful, the company will earn $500,000 in additional profit. If the marketing of this new product proves to be unsuccessful, the company will lose $350,000 in development and marketing costs. In the past, similar products have been successful 60% of the time. At a cost of $50,000, the effectiveness of the new restoration product can be thoroughly tested. If the results of such testing are favorable, there is an 80% chance that the marketing efforts of this new product will be successful. If the results of such testing are not favorable, there is a mere 30% chance that the marketing efforts of this new product will be successful. FineHair currently believes that the probability of receiving favorable test results is 0.60. a.   Identify the strategy that maximizes FineHair’s expected net earnings in this situation.


b.   Compute and interpret EVSI for this decision problem.


c.   Compute and interpret EVPI for this decision problem.