(1-3) Consider the following paragraphs to answer Questions 1-3: Video Tech is c

Question

(1-3) Consider the following paragraphs to answer Questions 1-3: Video Tech is considering marketing one of two new video games for the coming holiday season: Battle Pacific or Space Pirates. Battle Pacific is a unique game and appears to have no competition Estimated profits (in thousands of dollarsi under high, medium, and low demand are as follows: Battle Pacific Profit Probability High $1000 0.2 Demand Medium S700 0.5 300 0.3 Video Tech is optimistic about its Space Pirates game. However, the concern is that profitability will be affected hy a competitor's introduction of a video game viewed as similar to Space Pirates. Estimated profts (in thousands of dollars) with and without competition are as follows: Space Pirates with Competition Profit Probability High S800 Medium $400 0.4 Low 0.3 Space Pirates without Competition Profit Probability Medium $800 0.3 High $1600 $400 0.2 Q1.Video Tech believes there is a 0.6 probability that its competitor will produce a new game similar to Space Pirates. Given this prohability of competition, what is the expected value of Battle Pacific (in 460 O 640 724 1120 Question2 0.3 pts Given the setting at Q1 above.ehe0.6 probability of competition), what is the expected value of Space Pirates (in thousands)? 460 640 721 1120 Question3 0.5 pts Use sensitivity analysis to determine what the probability of competition for Space Pirates would have to be for you to change your recommended decision alternative (p: probability of competition), O p 0.7273 p>0.7273

Explanation / Answer

1) Since there is no competition for Battle Pacific game, the total value of the game will be the profit from demand as per their probability.

Expected value of Battle Pacific= 1000*0.2 + 700*0.5 + 300*0.3 = $640 (in thousand)

2) with competition, the first scenario of Space Pirates will be valid. After taking demand as per probability, the profit value of Space Pirates game will be = $800*0.3+$400*0.4+$200*0.3 = $460

3) Using sensitivity analysis, the probability of competition for Space Pirate should be greater than a threshold to change the recommended decision alternative.

So the Probability should be p>=0.7273

If probability is 0.7273, Battle Pacific will be $465 (0.7273*640) which will be greater than Space Pirates ($460)

Battle Pacific Demand Total Demand High Medium Low Profit $1000 $700 $300 Probability 0.2 0.5 0.3 640

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