Decision trees show the profit outcomes for the plans for two doughnut stores in a strong and a weak economy for the future. Which store is expected to have the greater expected profit?
A) Store 1 has a $27,900 greater profit.
B) Store 1 has a $1200 greater profit.
C) Store 2 has a $26,700 greater profit.
D) Store 2 has a $1200 greater profit.

Question

Decision trees show the profit outcomes for the plans for two doughnut stores in a strong and a weak economy for the future. Which store is expected to have the greater expected profit? 
A) Store 1 has a $27,900 greater profit. 
B) Store 1 has a $1200 greater profit. 
C) Store 2 has a $26,700 greater profit. 
D) Store 2 has a $1200 greater profit.

Quizplus · Accepted Answer

B) The expected value is found by multiplying the probability of each outcome by its profit value. This is expressed by (0.45 × $40,000) + (0.55 × $18,000) = $27,900 (store 1) and (0.45 × $30,000) + (0.55 × $24,000) = $26,700 (store 2). The difference between the stores is $27,900 - 26,700 = $1200.

Decision Trees Show the Profit Outcomes for the Plans for Two