Appendix 4A
Problem 4A-1 (20 minutes)
1. Decision tree:
Minor
$(200,000)
(.2)
Modest
A $400,000
(.5)
All Out $1,600,000
(.3)
Campaign
Minor
$80,000
(.2)
Modes6
B $300,000
(.5)
All Out $1,800,000
(.3)
2. Calculate expected profits.
Campaign A:
.2(100) + .5(400) + .3(1,600)
20 + 200 + 480 = $700
Campaign B:
.2(80) + .5(300) + .3(1,800)
16 + 150 + 540 = $706
The marketing manager should choose Campaign B because it has a
slightly higher expected profit.
.
Solutions Manual, Appendix 4A 1
Problem 4A-1 (20 minutes)
1. Decision tree:
Minor
$(200,000)
(.2)
Modest
A $400,000
(.5)
All Out $1,600,000
(.3)
Campaign
Minor
$80,000
(.2)
Modes6
B $300,000
(.5)
All Out $1,800,000
(.3)
2. Calculate expected profits.
Campaign A:
.2(100) + .5(400) + .3(1,600)
20 + 200 + 480 = $700
Campaign B:
.2(80) + .5(300) + .3(1,800)
16 + 150 + 540 = $706
The marketing manager should choose Campaign B because it has a
slightly higher expected profit.
.
Solutions Manual, Appendix 4A 1
