If she feels there is a 30% chance that demand will be high, what are the expected monthly profits for the outlet she will decide to lease?
A)$1,600
B)$1,100
C)$1,000
D)$900
E)$500

Question

Quizplus · Accepted Answer

First, we need to calculate the expected monthly profits for each outlet based on the probability of high demand:

Outlet A: 
High demand (70% chance): $3,000 
Low demand (30% chance): $1,500 
Expected monthly profit: (0.7 x $3,000) + (0.3 x $1,500) = $2,400

Outlet B: 
High demand (30% chance): $1,800 
Low demand (70% chance): $900 
Expected monthly profit: (0.3 x $1,800) + (0.7 x $900) = $1,260

Outlet C: 
High demand (50% chance): $2,000 
Low demand (50% chance): $1,000 
Expected monthly profit: (0.5 x $2,000) + (0.5 x $1,000) = $1,500

Based on these calculations, Outlet B has the highest expected monthly profit at $1,260. Therefore, the best choice is Outlet B.

If She Feels There Is a 30% Chance That Demand