Question

A company is considering advertising its new product on TV on Super Bowl Sunday. Let d1,...

A company is considering advertising its new product on TV on Super Bowl Sunday.

Let d1, d2 and d3 represent its decision to purchase one, two or three 30-second commercials respectively.
Dependent on whether the game is S1 = “Dull,” S2 =“Average”, S3 =“Above average,” or S4 = “Exciting,” their probabilities and profits are as follows:

S1

S2

S3

S4

Probability

0.1

0.3

0.4

0.2

d1

5

12

10

8

d2

-5

6

12

12

d3

7

14

-6

13

The expected pay-off of the best decision would be:

Select one:

a. 7.6

b. 9.7

c. 12.3

d. 8.3

Homework Answers

Answer #1

Multiply probabilities with each alternatives and select the best d with maximum expecetd value

s1 s2 s3

Probability

0.1

0.3

0.4

0.2

d1

5

12

10

8

d2

-5

6

12

12

d3

7

14

-6

13

For d1,expected pay off is  5*0.1+12*0.3+10*0.4+8*0.2=  9.7

For d2,expected pay off is -5*0.1+6*0.3+12*0.4+12*0.2=   8.5

For d3,expected pay off is 7*0.1+14*0.3-6*0.4+13*0.2=5.1

expected value is maximum for d1

best decision=d1

and expected payoff =9.7

ANSWER;

The expected pay-off of the best decision would be:9.7

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