Apple is considering marketing one of two new smartphones forthe coming holiday season: iPhone 8 and iPhone X. Estimated profitsin total USD under high, medium, and low demand are as follows:
| iPhone X | High | Medium | Low |
| Profit | $3,200,000,000 | $2,500,000,000 | $1,750,000,000 |
| Probability | 0.225 | 0.5 | 0.275 |
There is concern that profitability will be affected by aGoogle's introduction of the Pixel 2 smartphone viewed as similarto the iPhone 8. Estimated profits in total USD with and withoutcompetition are as follows:
| With Competition (iPhone 8) | High | Medium | Low |
| Profit | $1,250,000,000 | $800,000,000 | $600,000,000 |
| Probability | 0.2 | 0.5 | 0.3 |
| Without Competition (iPhone 8) | High | Medium | Low |
| Profit | $2,000,000,000 | $1,250,000,000 | $800,000,000 |
| Probability | 0.45 | 0.35 | 0.2 |
a. Develop a decision tree for the Apple problem.
b. For planning, Apple believes there is a 0.99 probability thatits competitor will produce a new smartphone similar to the iPhone8. Given this probability of competition, the director of planningin Cupertino recommends spending the ad dollars and heavilymarketing the iPhone X smartphone. Using expected value, what isyour recommended decision?
c. Show a risk profile for your recommendation.
d. Use sensitivity analysis to determine what the probability ofcompetition for iPhone 8 would have to be for you to change yourrecommended decision alternative.
