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Using the data in the decision tree, calculate the net gain for the marketing campaign - Edexcel - A-Level Business - Question 1 - 2022 - Paper 2

Question 1

Using the data in the decision tree, calculate the net gain for the marketing campaign. State your answer to two decimal places. You are advised to show your working... show full transcript

Worked Solution & Example Answer:Using the data in the decision tree, calculate the net gain for the marketing campaign - Edexcel - A-Level Business - Question 1 - 2022 - Paper 2

Step 1

Calculate Expected Value

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Answer

To calculate the expected value of the marketing campaign, we will consider the probabilities and the outcomes. The expected value (EV) can be calculated as follows:

For the successful outcome:
- Probability = 0.6
- Value = £3 million Therefore, contribution = 0.6 * £3 million = £1.8 million
For the unsuccessful outcome:
- Probability = 0.4
- Cost = £50,000 Therefore, contribution = 0.4 * -£50,000 = -£20,000

The total expected value is: $EV = £1.8 million - £20,000 = £1.78 million$

Step 2

Calculate Net Gain

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Answer

Now, to find the net gain, we need to subtract the initial cost from the expected value:

$Net Gain = Expected Value - Initial Cost$

Putting the values in:

Expected Value = £1.78 million
Initial Cost = £20,000

Thus, the net gain is: $Net Gain = £1.78 million - £0.02 million = £1.76 million$

Therefore, the final net gain is £1.76 million.

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