Our classmate Hasiba Stukes is now a highly successful marketing wizard! She\'s

Question

Our classmate Hasiba Stukes is now a highly successful marketing wizard! She's making a marketing presentation to the board of Jussaynoe Pharmaceuticals, who want to sell the antimath anxiety drug SHOVITALL^TM to the public. Hasiba has two marketing plans she's come up with for the board's decision: Plan A : a marketing plan that nets $30 million if successful (probability 0.8) and will lose $6 million if unsuccessful (probability 0.2) Plan B : a marketing plan that nets $44 million if successful (probability 0.6) and will lose $10 million if unsuccessful (probability 0.4) Construct an expected value payoff table for the two marketing plans A and B: Determine the expected values of each marketing plan (show your work!!). Based on the expected return, which of Hasiba's marketing plans should be approved by the board?

Explanation / Answer

a)

b)

E(A) = psuccess * Xsuccess + punsucess * Xunsuccess

=> 0.8 * (30) + 0.2 * (-6)

=>24 - 1.2

=> 22.8 million dollars

E(B) = psuccess * Xsuccess + punsucess * Xunsuccess

=> 0.6 * 44 + 0.4 * (-10)

=> 26.4 - 4

=> 22.4 million dollars

c) Since the expected return is higher in the marketing plan A, hence the company will go with the marketing plan A

Marketing Plan Xsuccess Psuccess Xunsuccessful Punsucessful A 0.8 30 million 0.2 -6 million B 0.6 44 million 0.4 -10 million

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