Which it is considering for full-scale production

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Reference no: EM131351518

The Battle Creek Breakfast Food Company has developed a new breakfast cereal which it is considering for full-scale production. Test market results have provided the following demand estimates:

Demand in Cases

_____Per Year_____ Probability

500,000 .15

1,000,000 .25

2,000,000 .45

5,000,000 .15

Development costs have totaled $1,200,000. If the new cereal goes into production, the company expects to receive $12 per case sold, variable production costs are $5 per case, and annual fixed costs are estimated at $5,000,000. Taking all relevant costs into consideration:

What should the company do in the case of each of the following decision rules:

a) Optimistic (maximax)?

b) Pessimistic (minimax)?

c) Equally likely?

d) EMV (use given probabilities)?

Reference no: EM131351518

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