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: 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

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:  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

Quizplus · Accepted Answer

To find the expected monthly profits, we need to take the weighted average of profits for each size of the outlet:

Expected profits for a small outlet = (0.3 x $800) + (0.4 x $400) + (0.3 x $200) = $440
Expected profits for a medium outlet = (0.3 x $1200) + (0.4 x $600) + (0.3 x $400) = $660
Expected profits for a large outlet = (0.3 x $1600) + (0.4 x $800) + (0.3 x $600) = $880

Therefore, the best choice for the owner would be to lease the medium outlet, as it has the highest expected monthly profits of $660.

The Owner of Tastee Cookies Needs to Decide Whether to Lease