AE 15 ACTIVITY

PROBLEM:
Ernest is the Product Manager of Dentyne and he is planning to launch a new product. He can either launch Dentyne
or not do anything at all. If he will launch Dentyne + Listerine, the company will gain P8,000 if the market is succes
is a failure. If he launch Dentyne + Bactidol, the company will gain P10,000 of the market is successful or lose P15,0
If he will not launch anything, the company will not gain anything whether the market is successful or failure. The pro
is successful and 45% that the market is a failure.

What should Ernest launch? How much gain or loss will he expect for the company?

ANSWERS:

Table 1
New Product Payoff Type of Market
( P000 ) Successful Failure
Dentyne + Listerine 8 -18
Dentyne + Bactidol 10 -15
Do Nothing 0 0
Probability 0.55 0.45

Table 2
Alternative Maximum? EMV Type of Market Probablity Payoff
Dentyne + Listerine No -3.7 Successful 0.55 8
Failure 0.45 -18
Dentyne + Bactidol No -1.25 Successful 0.55 10
Failure 0.45 -15
Do Nothing Yes 0 Successful 0.55 0
Failure 0.45 0

Therefore, Ernest should not do anything at all. If he launches the two products, he will acquire
losses of P 3,700 and 1,250 respectively. If he does not to do anything he will have no loss.

Table 3 Conditional Probabilities

P (Survey Market) Type of Market
Successful Failure
Positive 8 -18
Negative 10 -15
Prior Probability 0.55 0.45

Table 4 Revised Probabilities

P (Survey Market) Type of Market Joint Probability P (Survey)
Successful Failure Successful Failure
Positive 8 -18 4.4 -8.1 12.5
Negative 10 -15 5.5 -6.75 12.25
P (Survey Market) Prior Probability Posterior Probability Total
Successful Failure Successful Failure
Positive 0.55 0.45 0.35 0.65 1
Negative 0.55 0.45 0.45 0.55 1

If the market survey is positive, the probability is 35% that the market is successful and 65% that the market is a failu
If the survey is negative, the probability is 45% that the market is successful and 55% that the market is a failure.
an either launch Dentyne + Listerine, Dentyne + Bactidol,
0 if the market is successful or lose P18,000 if the market
successful or lose P15,000 of the market is a failure.
cessful or failure. The probability is 55% that the market
that the market is a failure.
e market is a failure.