A Firm Hires an Economist to Conduct Market Research and Determine

Essay

A firm hires an economist to conduct market research and determine demand for a new product. If the test is correct and the firm launches the product, it earns a profit of $600,000. If the firm launches the product when there is weak demand, it incurs a loss of $250,000.
$\begin{array} { | c | c | c | c | } \hline & \text { Strong } & \text { Weak } & \text { Total } \\\hline \text { Accurate } & 0.2 & 0.2 & 0.4 \\\hline \text { Inaccurate } & 0.3 & 0.3 & 0.6 \\\hline & 0.5 & 0.5 & 1.0 \\\hline\end{array}$ What is the firm's expected profit from an accurate and inaccurate test respectively? What can you conclude about the quality of the market research?