John is trying to decide whether to expand his business or not.If he continues his business as it is,with no expansion,there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.The expected value of John's earnings if he chooses not to expand is:
A) $400,000.
B) $200,000.
C) $250,000.
D) $225,000.

Question

Quizplus · Accepted Answer

The expected value if John does not expand is (0.5 * $100,000) + (0.5 * $300,000) = $200,000.

John Is Trying to Decide Whether to Expand His Business