Howard Weiss, Inc., is considering building a sensitive new radiation scanning d

Question

Howard Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of 0.40 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product, Weiss's expected profit is $50,000; if Weiss adds an assembly line and ATR follows suit, Weiss still expects $20,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000; if ATR does compete for this market, Weiss expects a loss of $80,000. a) Expected value for the Add Assembly Line option-S enter your answer as a whole number)

Explanation / Answer

Expected value for the add assembly line option = Expected profit when company participate in the market* probability + Expected profit when company does not participate in the market* probability

Expected value for the add assembly line option=$20,000*0.4 + $50,000*0.6 =$8000+$30000= $38000

So the answer is $38,000

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