Question

Whitmire Painting and Wall Decor is considering expanding its range of options to include chair stops with differential painting. The cost of adding this feature would is $5,000 per year. They expect that profits would be $60,000 with this feature in a strong economy but only $20,000 a year in a weak economy. Not adding this feature would not change the cost of operations but they expect profits to remain at $50,000 in a good economy and $30,000 in a bad economy. The chances of a good economy is 45% while a bad economy is 55%.

The expected value of expanding the store is                        [ Select ] ["$39, 000", "$41,000", "$42,000", "$38,000"] and the expected value of not expanding would be                        [ Select ] ["$42,000", "$39,000", "$41,000", "$38,000"] . Based on this information Whitmire Painting and Wall Decor should                        [ Select ] ["expand", "not expand"] their offerings. (pick out of the select, the first two is either of the four numbers that it shows but which one? and the last select is two options)

Answer 1

		A	B	c = A x B
	economy	Probability	profit	expected value
Expanding	strong	45%	60000	27000
	weak	55%	20000	11000
				38000
	economy	Probability	profit	expected value
Not expanding	strong	45%	50000	22500
	weak	55%	30000	16500
				39000

The expected value of expanding the store is, $38,000 and the expected value of not expanding would be $39,000. Based on this information Whitmire Painting and Wall Decor should not expand their offerings.