The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: $\begin{array}{|l|l|l|l|}
\hline\text {SIZE}\
\text {OF}&\text {DEMAND}\
\hline \text { OUTLET } & \text { LOW } && \text { HIGH } \
\hline \text { Small } & \$ 1,000 && 1,000 \
\hline \text { Medium } & 500 && 2,500 \
\hline \text { Large } & 0 && 3,000 \
\hline
\end{array}$ For what range of probability that demand will be high, will she decide to lease the small facility?
A) 0-.25
B) 0-.33
C) .25-.5
D) .33-1
E) .5-1

Question

Quizplus · Accepted Answer

The expected profit for the small outlet is 1000, while the expected profit for the medium outlet is (500 + 2500)/2 = 1500. Therefore, the owner will choose the small outlet if the probability of high demand is less than 1500/2000 = 0.75.

The Owner of Tastee Cookies Needs to Decide Whether to Lease