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?
