suppose a firm has turned down an offer to pay 10,000 dollars to generate new sales...
suppose a firm has turned down an offer to pay 10,000 dollars to generate new sales of 100,000 dollars with a probability of .3. Would this firm be willing to take part in an expo by paying 5000 dollars, knowing that this will bring new sales of 50,000 dollars with a probability of .4?
Homework Answers
profit in first case = 100,000 - 10,000 = 90000
expected profit in first case = 90000 * 0.3 = 27000
profit in second case = 50,000 - 5,000 = 45000
expected profit in second case = 45000 * 0.4 = 18000
the first case is profitable
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