Question

Engr. Grazielle Nabo is considering the posibility of opening a small dress shop in legazpi, a few blocks from aquainas university. She has located good mall that attracts students. Her options are to open a small shop, a medium-sized shop, or no shop at all. The market for a dress shop can be good, average or bad. The probabilities for thse are three possibilities are 0.20 for good market, 0.5 for an average market, and 0.30 for bad market. The net profit or loss for the medium-sized or small shops forthe various market conditions are given in the table. Building no shop at all yields no loss or gai. What do you recomment?

Alternatives	Good Market	Average Market	Bad Market
Small Shop	75000	25000	-40000
Meduim-Sized	100000	35000	-60000
No Shop	0	0	0
Probabilities	0.2	0.5	0.3

Answer 1

Based on the given data, we find the Expected monetary value for each alternative as shown below:

Alternatives Good Market Average Market Bad Market EMV Small Shop 75000 25000 -40000 15500 Meduim-Sized 100000 35000 -60000 19500 No Shop 0 0 0 0 Probabilities 0.2 0.5 0.3

As seen from above, the maximum expected monetary value = 19500 for Medium-sized. Hence,

A medium-sized shop is recommended.

The above solution in the form of formulas is shown below for better understanding and reference:

1 B Good Market 75000 100000 Average Market A Alternatives Small Shop Meduim-Sized No Shop Probabilities 2 3 4 25000 35000 0 D Bad Market -40000 -60000 lo 0.3 E EMV =SUMPRODUCT(B2:D2,$B$5:$D$5) =SUMPRODUCT(B3:D3,$B$5:$D$5) =SUMPRODUCT(B4:04,$B$5:$D$5) 0 5 0.2 0.5

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