The introduction of a new product into the marketplace is quite risky. The percentage of new product ideas that successfully make it into the marketplace is as low as 1%. Research and development costs must be recouped, along with marketing and production costs. However, if a new product is warmly received by customers, the payoffs can be great. Following is a payoff table (decision table) for the production of a new product under different states of the market. Notice that the decision alternatives are to not produce the product at all, produce a few units of the product, and produce many units of the product. The market may be not receptive to the product, somewhat receptive to the product, and very receptive to the product.
a. Use this matrix and the Hurwicz criterion to reach a decision. Let
b. Determine an opportunity loss table from this payoff table and use minimax regret to reach a decision.