How much is the marketing research worth to mary

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Reference no: EM132085043

Mary is considering opening a new grocery store in town. She is evaluating three sites: downtown, the mall, and out at the busy traffic circle. Mary calculated the value of successful stores at these locations as follows: downtown, $250,000; the mall, $300,000; the circle, $400,000. Mary calculated the losses if unsuccessful to be $100,000 at either downtown or the mall and $200,000 at the circle. Mary figures her chance of success to be 50% downtown, 60% at the mall, and 75% at the traffic circle.

A) Draw a decision tree for Mary and select her best alternative.

B) Mary has been approached by a marketing research firm that offers to study the area to determine if another grocery store is needed. The cost of this study is $30,000. Mary believes there is a 60% chance that the survey results will be positive (show a need for another grocery store). SRP=SRP=survey results positive, SRN=SRN= survey results negative, SD=SD=success downtown, SM=SM=success at mall, SC=SC=success at circle, SD'=SD′=don’t succeed downtown, and so on. For studies of this nature:

P (SRP | success) =0.7, P (SRP | success) =0.7,

P (SRN | success) =0.3, P (SRN | success) =0.3,

P (SRP | not success) =0.2, P (SRP | not success) =0.2, and

P (SRN | not success) =0.8. P(SRN | not success)=0.8.

Calculate the revised probabilities for success (and not success) for each location, depending on survey results.

C) How much is the marketing research worth to Mary? Calculate the EVSI.

Reference no: EM132085043

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