Austin Electronics expects sales next year to be $1,080,000 if the economy is st

Question

Austin Electronics expects sales next year to be $1,080,000 if the economy is strong, $740,000 if the economy is steady, and $393,000 if the economy is weak. The firm believes there is a 25 percent probability the economy will be strong, a 45 percent probability of a steady economy, and a 30 percent probability of a weak economy.

What is the expected level of sales for next year

Austin Electronics expects sales next year to be $1,080,000 if the economy is strong, $740,000 if the economy is steady, and $393,000 if the economy is weak. The firm believes there is a 25 percent probability the economy will be strong, a 45 percent probability of a steady economy, and a 30 percent probability of a weak economy.

Explanation / Answer

EXPECTED LEVEL OF SALES = 1080000 * 0.25 + 740000*0.45 + 393000*0.3

= 270000+333000+117900 = 720900

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