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?

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Answer

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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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