Samantha’s Group of Companies is deciding if it should design an advertising system for use on its website. The first option is to skip out on designing, with no net costs or gains. The second option is System A, which would result in additional sales of either $25,000 under good conditions or -$15,000 under bad conditions. The final choice is System B, which would increase sales -$5,000 under both good and bad conditions.
Note that it costs $25,000 to develop a system. Assume that good conditions are TWICE as likely as the bad conditions. (Hint: twice as likely means a ratio of 2:1).
QUESTION 1 [CLO 2]
a) Outline the ultimate objective for the use of decision trees in product design.
How is this objective accomplished? (3 marks)
b) Draw the appropriate decision tree for the above problem. (7 marks)
c) Calculate expected monetary values for all courses of action. (7 marks)
d) Which option should the company pursue?
Justify your response.