Question 1. (Decision Analysis) Willy Wheels has invented a new type of headlight that allows motorists to see much better at night. A car manufacturer and a headlight company both want exclusive rights to his patent for the invention. If he signs with the headlight company he will receive a single lump sum of $500,000, but if he signs with the car manufacturer the amount he will receive depends on the market demand to the headlight. The payoffs are summarized in the following table.

Question la. To whom should Willy sell the rights based on the expected monetary value criterion?

Question lb. What is the most Willy should be willing to pay to learn what the size of the market demand would be before he makes the decision?

Question 1c. Suppose Willy wants to hire a market research firm to conduct a survey for his headlight. In the past the firm has conducted the same type of survey many times and the firm’s ability to assess the market is presented in the table below. Suppose the survey result of Willy’s headlight shows a favorable public response to his headlight, what is the revised probability that the actual market demand will be large?

Price: $7.6

Solution: The downloadable solution consists of 4 pages, 360 words and 2 charts.
Deliverable: Word Document