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: For what range of probability that demand will be high,will she decide to lease the medium facility?
A)0 - .25
B)0 - .33
C).25 - .5
D).33 - 1
E).5 - 1

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:  For what range of probability that demand will be high,will she decide to lease the medium facility?
A)0 - .25 
B)0 - .33 
C).25 - .5 
D).33 - 1 
E).5 - 1

Quizplus · Accepted Answer

To determine the range of probability for which the owner should lease the medium facility, we need to calculate the expected profits for each facility based on the given profit matrix:

Small Facility: 11(.10) + 12(.20) + 13(.30) = $3.10
Medium Facility: 15(.10) + 17(.20) + 19(.30) = $5.20
Large Facility: 20(.10) + 24(.20) + 28(.30) = $8.60

Therefore, if the probability of high demand falls within the range of .25 to .5 (i.e., demand is either moderate or high), then the medium facility would be the best choice as it yields the highest expected profits. If the probability of high demand is less than .25, then the small facility would be the best choice, and if the probability of high demand is greater than .5, the large facility would be the best choice.

The Owner of Tastee Cookies Needs to Decide Whether to Lease