Question

The Cola Company must decide if they are going to introduce a new soda. Management feels that if it does introduce the new soda it will yield a profit of $1 million if sales are around 100 million bottles, a profit of $200,000 if sales are around 50 million bottles, or it will lose $2 million if sales are only around 1 million bottles. If Cola Company does not introduce the new soda, it will suffer a loss of $400,000 for the research and development spent on developing the new soda. An internal marketing research study has found P(100 million in sales) = 1/3; P(50 million in sales) = 1/2; and P(1 million in sales) = 1/6.

• Draw the decision tree that captures this problem and analyze the tree to justify your explanation regarding whether Cola Company should introduce the new soda.

Answer 1