4. Explain in details and provide the appropriate arguments if Diet Coke introdu

Question

4. Explain in details and provide the appropriate arguments if Diet Coke introduce the new energy drink by using

I. a conservative approach

II. an optimistic approach

III. the middle of the road (MaxiMin Regret) approach e.

5.An internal study by the management estimates that the probability of selling 100,000,000 bottles is 0.3333, the probability of selling 50,000,000 bottles is 0.50, the probability of selling 1,000,000 bottles is 0.1667. Should they introduce the new diet drink? Why? Explain in details.

6. “Soft Drink Consultants” is a company that provides a tailor-made feasibility study for a consulting fee of $275,000. Should Diet Coke hire them to conduct such study? Why? Explain

Profit of 1,000,000 with 1, 00,000,000 bottles Produce Energy Drink Profit of 200000 with 50,000,000 bottles DIET COKE Loss of 2,000,000 with 1,000,000 bottles Don't Produce Loss of 400,000 Payoff Table Number of bottles sold Profit made Profit margin Per bottle 100,000,000 1,000,000 0.01 50,000,000 200,000 0.004 Regret table Number of bottles sold Loss made loss per bottle 1,000,000 2,000,000 0 400,000 All loss

Explanation / Answer

If diet coke introduce the new energy drink then it may have profit of 0.01 /bottle or 0.004/bottle or -2/bottle . total profit /bottle is 1.986/bottle

I ) Conservative approach :

There will be loss of 2000000 with 1000000 bottles

2) Optimistic approach : There will be the profit of 1000000 with 100000000 bottles

3) Maximin regret : There will be the profit of 200000 with 50000000 bottles.

5)

As , overall there will be the profit of 99900 units they should introduce new diet drink. Ans if the will not introduce the new diet coke they have to suffer the loss of 400000 which is not affordable. Average profit will be 99900/3 = 33300 units.

6) As overall profit is 99900 < consulting fees $ 275000 , its not advisable to hire the consultancy.

S1 S2 S3 N1 0.01 0.004 -2

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