Question: Now, Reddy and Rao were in a quandary whether the company should go ahead and market the drug. They contacted Raj Adduri, a common friend for advice. Adduri was of the opinion that given the risky nature of launch, it may be a better idea to test the market. Rao and Reddy realized test marketing would cost 10 crores. Adduri told them the previous test marketing results have been favorable 70% of times and success rate of products favorably tested was 80%.Further, when test marketing results were unfavorable; the products have been successful 30% of the times.
What is the probability of product failure if Reddy and Rao decides to test market it?
Probability of product failure if the test marketing results were favourable = (0.7)(0.2) = 0.14
Probability of product failure if the test marketing results were unfavorable = (0.3)(0.7) = 0.21
Hence, option (b).