The formulae for the Probability Unit can be found in Blackboard under the Proba

Question

The formulae for the Probability Unit can be found in Blackboard under the Probability Unit 4. I want to open a bakery and I am considering locations at two different shopping centers. Use expected value to determine which location I should use. According to my consultant, if the bakery is successful, I can anticipate an annual profit of $300,000. If it's not successful, I can anticipate an annual loss of $100,000. The probability of success of this location is 0.5. According to my consultant, if the bakery is successful, I can anticipate an annual profit of $200,000. It it's not successful, I can anticipate an annual loss of $60,000. The probability of success at this location is 0.75. Location 1: Loca tion 2: Grading Criteria 4. Total: 10 points Breakdown Location 1: Correct answer: 2.5 points Correct work shown: 1.5 points Location 2: Correct answer: 2.5 points Correct work shown: 1.5 points Sentences explaining reasoning: 2 points

Explanation / Answer

We will choose the location with highest expected profit.

Location 1:

Profit = 0.5 * 300000 - 0.5 * 100000

P = 100,000

Location 2:

Profit = 0.75 * 200000 - 0.25 * 60000

P = 135000

As, expected profit at location 2 is > than location 1 proit , we should use location 2.

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