Construct a decision tree diagram

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Reference no: EM132801501

Question - Decision tree analysis

1. Avon cosmetics wishes to determine whether or not to make a new face powder. The marketing manager may order a consumer testing program for 50,000. The present value of all future profits for a successful product is P1,000,000. The brands failure will result in a net loss of P500,000. Not marketing the face powder will not affect the profit. The manager judges that the face powder would have 60% chance of success without testing.

Customer testing will either be favorable (60%) or unfavorable. Given a favorable result, the chance of product success is judged to be 75%. But for unfavorable test result, the face powder's probability is judged to be 40%. Construct a decision tree diagram. Should Avon cosmetics push the approach? Explain why?

2. Myra, a casual employee, is not feeling well due to severe cold. She has to decide whether to report for work or to stay home and rest. If she goes to work, there is 40% chance of getting sick ad spending P200 for medicine. If she stays at home, P120 will be deducted from her salary for her absence. Should she go to work or rest? Please explain.

Reference no: EM132801501

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