A company is trying to decide whether to build a large plant or a small plant to supply future sales of a new product.However,it is uncertain about the market response to the product;whether demand will be strong or weak.According to the firm's marketing department,the probability of strong demand is 0.3 and of weak demand is 0.7.The table below lists the firm's profits (in millions of dollars)depending on plant capacity and the market response:
(a)The company must make its plant decision now,before it will know what the market response will be.Which plant size maximizes its expected profit?

Question

A company is trying to decide whether to build a large plant or a small plant to supply future sales of a new product.However,it is uncertain about the market response to the product;whether demand will be strong or weak.According to the firm's marketing department,the probability of strong demand is 0.3 and of weak demand is 0.7.The table below lists the firm's profits (in millions of dollars)depending on plant capacity and the market response:
  (a)The company must make its plant decision now,before it will know what the market response will be.Which plant size maximizes its expected profit?

Quizplus · Accepted Answer

The Answer of A company is trying to decide whether to build a large plant or a small plant to supply future sales of a new product.However,it is uncertain about the market response to the product;whether demand will be strong or weak.According to the firm's marketing department,the probability of strong demand is 0.3 and of weak demand is 0.7.The table below lists the firm's profits (in millions of dollars)depending on plant capacity and the market response:
  (a)The company must make its plant decision now,before it will know what the market response will be.Which plant size maximizes its expected profit?

A Company Is Trying to Decide Whether to Build a Large