Answered Essay: Howard​ Weiss, Inc., is considering building a sensitive new radiation scanning device. His

Howard​ Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of 0.45 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 $40,000​; if Weiss adds an assembly line and ATR follows​ suit, Weiss still expects $10,000 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 $120,000. What is the expected value for the add assembly line option? What is the expected value for building the new plant?

Expert Answer


Hope this answer fulfills your requirements .kindly post a comment if otherwise .

Expected Mean Value (EMV ) = (payoffs*probablity)ATR competes +(payoff*probability)o ATR doesnt compete

Hence Here Probability that ATR competes with assembly line =0.45 ,payoff = 10000$

Probability that ATR doesnt compete = 1-0.45 =0.55 ,payoff = 40000$

Hence EMV of assembly line = (0.45*10000) + (0.55*40000) = 4500+22000 = 26500

On the same lines

EMV of new plant = 0.45*(-12000) + 0.55*(600000) =330000-54000 = 276000

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