Decision tree: Nintendo Ltd. has developed a new product. They can either....

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Hello everybody!
I have special sample. Could you please help me to solve it?

Nintendo Ltd. has developed a new product. They can either test the market for this product at a cost of 5000 GBP or abandon the project. Experience leads them to believe that the probability of a successful market test is 0.70. If the market test is unfavourable they will abandon the project. If the market test is favorable they could either sell the licence to manufacture the product to another company for 9,000 GBP or invest a further 10,000 GBP to manufacture the product themselves. If Nintendo Ltd. manufacture the product themselves the possible returns are given in the table below:

Demand Probability Return
Low 0.25 15,000 GBP
Medium 0.15 30,000 GBP
High 0.15 30,000 GBP
Draw the decision tree and hand calculate.

1. The expected profit if the best strategy is followed
2. The most Nintendo should pay for a prediction of demand for the product.

Any ideas of solving this?
Thank you.

 

[Deleted member 4993]

Hello everybody!
I have special sample. Could you please help me to solve it?

Nintendo Ltd. has developed a new product. They can either test the market for this product at a cost of 5000 GBP or abandon the project. Experience leads them to believe that the probability of a successful market test is 0.70. If the market test is unfavourable they will abandon the project. If the market test is favorable they could either sell the licence to manufacture the product to another company for 9,000 GBP or invest a further 10,000 GBP to manufacture the product themselves. If Nintendo Ltd. manufacture the product themselves the possible returns are given in the table below:

Demand Probability Return
Low 0.25 15,000 GBP
Medium 0.15 30,000 GBP
High 0.15 30,000 GBP
Draw the decision tree and hand calculate.

1. The expected profit if the best strategy is followed
2. The most Nintendo should pay for a prediction of demand for the product.

Any ideas of solving this?
Thank you.

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