Question

A store specializing in mountain bikes is to open in one of to malls. if the first mall is selected, the store anticipates a yearly profit of $1,500,000 If ucessful and yearly loss of $500,000 otherwise. the probabilitiy of sucess is 1/2. if the second mall is selected, it is estimated that the yearly profit will be $1,000,000 if successful; otherwise, the annual loss will be $300,000. the probability of success at the second mall is 3/4

a. what is the expected profit for the first mall?
b. what is the expected profit for the second mall?
c.which mall should be chosen in order to maximise the expected profit?
Pick of the following...
1. the first mall should be chosen in order to maximize profit
2. the second mall should be chosen in order to mazimise profit
3. either of the two malls may be chosen; the profit will be the same

Answer 1

$750,000

Explanation:

Expected profit = 0.5 × $1,500,000 = $750,000

Second profit = 075 × $1,000,000 = $750,000

Either the two malls may be chosen, the profit will be the same.