In Example 7.2 , the foxed costs are split \( \$ 4 \) million for development and \( \$ 2 \) million for marketing. Perform a sensitivity analysis where the sum of these two fixed costs remains at \( \$ 6 \) million but the split changes. Specifically, let the fixed cost of development vary from \( \$ 1 \) million to \( \$ 5 \) million in increments of \( \$ 0.5 \) million. Does Acme's best strategy change in this range? Use either a data table or PrecisionTree's Sensitivity Analysis tools to answer this question. The same strategy is select

To perform a sensitivity analysis on the fixed costs of development and marketing, we will follow these steps: 1. **Define the Fixed Costs**: The total fixed costs remain at \( \$ 6 \) million, with the development cost varying from \( \$ 1 \) million to \( \$ 5 \) million in increments of \( \$ 0.5 \) million. This means the marketing cost will adjust accordingly. 2. **Calculate the Marketing Costs**: For each increment of the development cost, we will calculate the corresponding marketing cost as follows: \[ \text{Marketing Cost} = 6 - \text{Development Cost} \] 3. **Evaluate Acme's Best Strategy**: We need to determine if Acme's best strategy changes as we vary the fixed costs. This typically involves analyzing the impact of these costs on the overall profitability or decision-making criteria. 4. **Create a Data Table**: We will create a data table to summarize the fixed costs and the corresponding marketing costs. 5. **Analyze the Results**: Finally, we will analyze the results to see if the best strategy changes with the varying fixed costs. ### Step 1: Define the Fixed Costs - Total Fixed Costs: \( 6 \) million - Development Cost: Varies from \( 1 \) million to \( 5 \) million in increments of \( 0.5 \) million. ### Step 2: Calculate the Marketing Costs We will calculate the marketing costs for each value of the development cost. ### Step 3: Create a Data Table Let's create the data table for the fixed costs: | Development Cost (Million) | Marketing Cost (Million) | |-----------------------------|---------------------------| | 1.0 | 5.0 | | 1.5 | 4.5 | | 2.0 | 4.0 | | 2.5 | 3.5 | | 3.0 | 3.0 | | 3.5 | 2.5 | | 4.0 | 2.0 | | 4.5 | 1.5 | | 5.0 | 1.0 | ### Step 4: Analyze the Results To determine if Acme's best strategy changes, we need to evaluate the impact of these fixed costs on the overall profitability or decision-making criteria. This typically involves calculating the expected profits or costs associated with each combination of fixed costs. Since we don't have specific profit or cost functions provided in the problem, we can assume that the best strategy is determined by the relationship between development and marketing costs and their impact on overall profitability. ### Conclusion - If the best strategy is based on minimizing costs, we would analyze the profitability at each level of development and marketing costs. - If the best strategy is based on maximizing revenue, we would need to evaluate how changes in fixed costs affect revenue generation. In summary, without specific profit or cost functions, we cannot definitively conclude whether Acme's best strategy changes. However, the data table provides a clear view of how the fixed costs are structured, and further analysis would be required to determine the impact on strategy. If you have specific profit or cost functions, please provide them for a more detailed analysis.