John is trying to decide whether to expand his business or not.If he continues his business as it is,with no expansion,there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.If John decides to expand,it means:
A)the difference in expected earnings from expanding versus not must exceed $150,000.
B)the sum in expected earnings from expanding and from not must exceed $150,000.
C)the difference in expected earnings from expanding versus not must not exceed $150,000.
D)his expected earnings from expansion must exceed $150,000.

Question

Quizplus · Accepted Answer

The expected earnings from expanding must exceed the expected earnings from not expanding by more than $150,000 to justify the cost of expansion.

John Is Trying to Decide Whether to Expand His Business