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Markov Analysis 2. Management of a Milk Chocolate Galore company believes that the probability of a...

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Advance Math

Markov Analysis 2. Management of a Milk Chocolate Galore companybelieves that the probability of a customer purchasing itsMilkyChoc or the company’s major competition, ChocoMilk, is basedon the customer’s most recent purchase. Suppose that the followingtransition probabilities are appropriate:

To

From                                               MilkyChoc                       ChocoMilk

MilkyChoc                                            0.8                                    0.2

ChocoMilk                                           0.3                                    0.7

a. Show the two-period tree diagram for a customer who lastpurchased MilkyChoc. What is the probability that this customerpurchases MilkyChoc on the second purchase?

b. What is the long-run market share for each of these twoproducts?

c. A MilkyChoc advertising campaign is being planned to increasethe probability of attracting ChocoMilk customers. Managementbelieves that the new campaign will increase to 0.40 theprobability of a customer switching from ChocoMilk to MilkyChoc.What is the projected effect of the advertising campaign on themarket shares?

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