Problem 1
The Super Cola Company must decide whether or not to introduce a new diet soft drink. Management feels that if it does introduce the diet soda it will yield a profit of $ 1 million if sales are around 100 million a profit of $ 200,000 if sales are around 50 million, or it will lose $ 2 million if sales are only around 1 million bottles. If Super Cola does not market the new diet soda, it will suffer a loss of $ 400,000.
a. Construct a payoff table for this problem.
Decisions @ 100 M sales @ 50 M sales @ 1 M sales
GO 1 M 200,000 - 2 M
NO GO -400,000 -400,000 -400,000

b. Construct a regret table for this problem.
Decisions @ 100 M @ 50 M @ 1 M Worse Return
Go 1,000,000 200,000 -2,000,000 -2,000,000
No GO -400,000 -400,000 -400,000 -400,000
Best Return 1,000,000 200,000 -400,000

Regret Table @ 100 M @ 50 M @ 1 M Worse Regret
Go 0 0 -1,600,000 -1,600,000
No GO -1,400,000 -600,000 0 -1,400,000

Therefore, using a mini-max choice based on regret, the best choice would be “No Go”, ensuring a regret of no worse than $ -1, 4000,000.
c. Should Super Cola introduce the soda if the company:
1. Conservative approach (pessimistic).
Decisions @ 100 M @ 50 M @ 1 M Minimum Payoff
Go 1,000,000 200,000 -2,000,000 -2,000,000
No GO -400,000 -400,000 -400,000 -400,000

The decision should be “No Go” at a maxi-min payoff of $ -400,000

2. Optimistic approach
Decisions @ 100 M @ 50 M @ 1 M Maximum Payoff
Go 1,000,000 200,000 -2,000,000 1,000,000
No GO -400,000 -400,000 -400,000 -400,000

The decision should be “Go” with the maximum payoff of $1,000,000.
3. Wants to minimize its maximum disappointment.
Decisions @ 100 M @ 50 M @ 1 M Maximum Payoff
Go 1,000,000 200,000 -2,000,000 1,000,000
No GO -400,000 -400,000 -400,000 -400,000

The Decision should be “No Go” at a maximum payoff of $ -400,000.
d. An internal Marketing research study has