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?

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?

Quizplus · Accepted Answer

To find the expected monthly profit for each outlet size, we take the weighted average of the profits for high and low demand:

Small Outlet:
0.7(700) + 0.3(300) = 550

Medium Outlet:
0.7(1200) + 0.3(600) = 960

Large Outlet:
0.7(2500) + 0.3(1000) = 1900

The best choice would be the medium outlet, as it has the highest expected monthly profit of $960.

The Owner of Tastee Cookies Needs to Decide Whether to Lease